No. of Recommendations: 3
<<<<Two reasons he may have set the 110% of BV upper limit for repurchases:
1) He wanted any partners who were considering selling their shares to know that he thought they would be selling too cheaply at less than 110% of BV.
2) He wanted any partners uninterested in selling (actually, all partners) to know that he had their backs when making capital allocation decisions that would benefit continuing partners.>>>>>
Add to the list,
3) He laid out the discipline / framework for stock buybacks for the long term. 1.1x or 1.2x or 1.Xx are less relevant than the fact that the a~la~carte menu options for capital allocation in the coming decades MUST include buybacks. As much as he despises the white flag of capital allocation it represents. Between 2020 and 30, more capital would have to be allocated than during 1965-2020. Making it easier, if that is even possible, for Abel. Buybacks represents a mistake avoidance tool, sadly. Poor fella.
4) At that time, it made sense to buyback at 1.Xx as the bias was to go the captive capital / whole ownership way - think BHE, PCP et al. As stated in several letters, Buffett pointed out the coming gradual(very slow) widening between IV and BV due to accounting treatment. But the jury is out on that approach; things have changed. In a bad way for Omaha. Most notably the setbacks to BHE’s pipeline muddied by fires and kill-the-company regulatory environment. And the deal pipeline drying out thanks to those pesky PE’s.
5) Buffett’s die-with-zero plan meant that the 31% stake he held would, in due course, end up in the hands of strangers. This ownership dilution baggage opens up shareholder activism. Retiring shares is a partial countermeasure.
6) Munger and the board forced Buffett’s hand in announcing the buyback as a very large, one-time load-the-truck-opportunity in preparation of the sad day to come.
