Industrials

Is Berkshire Hathaway Becoming More Private Equity Than Conglomerate Under Buffett?

This year, Buffett joined up with 3G again to roll Kraft Foods Group Inc. (NASDAQ: KRFT) into the Heinz effort. What was so interesting is that Kraft used to be a very large Buffett holding in the public stock portfolio. Then the shares were sold off when Buffett was not so happy about a pricey acquisition of close to $20 billion for Cadbury. But fast forward to 2015, and Heinz and Kraft are merging. Suddenly Berkshire Hathaway will have about $9.5 billion worth of common stock in the newly merged H.J. Heinz-Kraft Foods company.

What about Duracell? Procter & Gamble (NYSE: PG) used to be a much larger stake for Berkshire Hathaway, dating all the way back to the Gillette buyout, when Buffett won out. P&G is in the process of unloading many non-core brands now, and it was Buffett who stepped in late in 2014 with a deal to acquire Duracell. P&G will plow about $1.7 billion into the unit and will be given back roughly $4.7 billion worth of P&G common stock (valued at time of the deal), so Buffett is trading back the public stock to own Duracell outright. No more public P&G shares will be held, but Duracell will be a Berkshire subsidiary.

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Another recent acquisition is from late in 2014, when Berkshire Hathaway bought Van Tuyl Automotive. The new group is Berkshire Hathaway Automotive, and it almost certainly will do bolt-on acquisitions on top of the 78 auto dealerships under the Van Tuyl umbrella — with annual sales of $8 billion at the time the deal was announced. Buffett signaled that there were over 17,500 car dealerships in America as of 2012, and his pointing to consolidation only means that more dealerships will be acquired by Berkshire.

The most fresh deal in which Buffett has swapped holdings with private equity is in shares of Axalta Coating Systems Ltd. (NYSE: AXTA). The company has just announced that a Berkshire Hathaway Inc. (NYSE: BRK-B) affiliate has entered into a definitive agreement with certain affiliates of Carlyle Group L.P. (NASDAQ: CG) to buy 20 million common shares of Axalta for a total purchase price of $560 million, or $28.00 per share, versus a $27.68 close and a 52-week range of $24.42 to $35.99. Maybe this is a public stock, but it came from private equity.

What about the recent selling of the huge Exxon Mobil Corp. (NYSE: XOM) stake? This almost feels like more of a hedge fund trade, because it would have been hard for a private equity firm or a conglomerate to quickly sell off an entire company during the drop in oil. General Electric had been getting increasingly into energy, and it seems that Buffett and his portfolio managers were becoming worried that the days of high oil prices might not be back for a while. GE could not have acted this quickly if it wanted to.

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Another issue is that Buffett is no longer endlessly adding to his public bank stocks. His stake in Wells Fargo & Co. (NYSE: WFC) has stopped growing, but it is still a 9% stake at over 463 million shares (now worth some $25 billion). Other bank stakes are not growing as fast. Berkshire Hathaway also has been growing the stakes in Visa Inc. (NYSE: V) and MasterCard Inc. (NYSE: MA) at a time that American Express Co. (NYSE: AXP) has run into serious headwinds. Would Buffett dare to consider unloading his long-term American Express stake of 151.6 million shares?

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