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

Then there are the preferred shares or senior note efforts …

During the recession, Berkshire Hathaway helped Dow Chemical Co. (NYSE: DOW) with $3 billion so it acquire Rohm & Haas. In the deal, Buffett and team received preferred shares of Dow, with an 8.5% rate, and received about $225 million per year in income, as well as accumulating capital gains that can be taken through time.

Two other deals that Buffett entered into during harder times were in jewelry and motorcycles. These were also financing deals, and the common stocks have not really shown up in the public stock holdings of Berkshire Hathaway over the years since. The deals involved Harley-Davidson Inc. (NYSE: HOG), with Berkshire Hathaway an investor in the $600 million in senior unsecured notes for lending activities inside of Harley-Davidson. The notes were due in five years, but they came with a rate of 15%. Berkshire also invested $250 million into Tiffany & Co. (NYSE: TIF) via 10% notes, half of which are due in 2017 and half of which are due in 2019.

Going big …

The $26 billion buyout of rail giant Burlington Northern Santa Fe from 2009 was an outright conglomerate move. Still, this deal is now years in the past. If any recent deal-making trends could be retroacted, it seems that Buffett might have included partners more. This was Buffett’s “all-in bet on America” at a time when America needed all-in bets being publicized to demonstrate confidence.

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So, what else has Buffett been up to?

It is no secret that Buffett has bought up regional and community newspapers in recent years, where there is limited competition.

Berkshire Hathaway recently raised capital in a European bond issue to take advantage of lower interest rates in Europe. Most large U.S. companies have been raising their debt here in the United States.

Berkshire Hathaway has been going ever larger into real estate sales, via the growth of Berkshire Hathaway HomeServices — acquiring real estate brokerage presences around America. The deal ties back to acquiring Prudential and Real Living from based Brookfield Asset Management Inc. (NYSE: BAM), with Brookfield joining to create the Berkshire Hathaway HomeServices franchise brand. Brookfield is largely considered by investors to be a public private equity firm, although the Canadian company lists itself as an alternative asset manager (with about $200 billion in assets under management).

Berkshire’s full list of subsidiaries shows the rest: insurance, reinsurance, financial bets, consumer products, furniture, jewelry, food and on and on.

Buffett’s letter inside the Berkshire Hathaway 2014 annual report, which was before the Kraft-Heinz deal, said:

With the acquisition of Van Tuyl, Berkshire now owns 91⁄2 companies that would be listed on the Fortune 500 were they independent (Heinz is the 1⁄2). That leaves 490 1⁄2 fish in the sea. Our lines are out.

To go on and on about the list of acquisitions and partnership deals inside of Berkshire Hathaway could end up being a financial history book. It just seems as though the efforts of deal-making inside the Berkshire Hathaway empire are changing, compared to the outright acquisitions of the past. Investors likely will not need to worry at all about the tax status as a conglomerate changing. Still, the shadow and influence of private equity sure seems to be growing, versus simple buying and tucking companies into conglomerate operations.

And to think that there was a day when Berkshire Hathaway was at some degree of risk of being taxed and treated as a mutual fund. Times change throughout various business cycles, even for very wealthy men in their 80s.

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