No. of Recommendations: 9
HOW, can you respond without mentioning that BRKB buying back 100 Billion of Buffett's shares at 1.3 xs BV, would be very accretive to IV, hence, very bullish news?
I did.
I said presumably the price would settle a little higher.
As with any other buybacks, it's nice, but it takes a huge move like this to make much of a difference to value per share. A few billion here or there isn't really worth paying attention to.
Let's imagine you think a share is actually worth 1.6 times book value these days, so $100bn buyback at 1.3 times book would purchase $123bn in value for $100bn in cash, adding $23bn to the total value of Berkshire.
Shareholders' equity is $649bn, so at 1.6 we're assuming the firm is worth $1039bn before the transaction. An increase $23bn is therefore an increase of only 2.2% in total value. Around 11.8% fewer shares outstanding, so value per share would rise by about 15.9%.
The transaction would drop book per share quite a bit because of the $100bn of cash going out the door, so fair P/B would be 1.93 after the transaction (same valuation level as 1.6 before the transaction).
Perhaps a bit less, as there wouldn't be the firepower for an elephant during the next round of market ructions?
Jim
