Personal Finance Topics / Retirement Investing
No. of Recommendations: 7
Chubb, one of the largest and best-run P&C insurers in the world, could be a perfect fit for Berkshire, which has a huge P&C business, led by Geico, the No. 3 auto insurer, as well as large reinsurance operations and a growing primary P&C business.
Chubb fits that bill, now trading reasonably at about 12 times projected 2024 earnings. If Berkshire were to offer $325 a share, a premium of over 20%, that would be a $130 billion deal and value Chubb at 15 times earnings. Such a deal would be accretive to Berkshire’s earnings given that the company’s cash is now earning a 5%-plus yield in Treasury bills. A P/E of 15 equates to an earnings “yield” of about 7%.
https://www.msn.com/en-us/money/companies/what-if-...
No. of Recommendations: 9
...trading reasonably at about 12 times projected 2024 earnings.
Insurance earnings are cyclically elevated, so I'd be hesitant to be quite that optimistic about the valuation levels. I agree it doesn't seem too bad, though. Even with today's pop to $275 and a more muted view of cyclically adjusted earnings, the multiple might be no more than the 18-19 range at a wild guess.
Book per share is up around 4-5%/year in the last 5-10 years. It's not the growth rate that people expect from Nvidia, but perhaps a good home for some bored capital.
Jim
No. of Recommendations: 7
MSN: Chubb, one of the largest and best-run P&C insurers in the world, could be a perfect fit for Berkshire, which has a huge P&C business, led by Geico, the No. 3 auto insurer, as well as large reinsurance operations and a growing primary P&C business.
Chubb fits that bill, now trading reasonably at about 12 times projected 2024 earnings...
MSN doesn't mention that it would also make 2 in a row for major acquisitions from crime families like the Haslams and, now, the Greenbergs. It seems that smell is one of the first senses that gets lost as we get older.
dtb
No. of Recommendations: 1
MSN doesn't mention that it would also make 2 in a row for major acquisitions from crime families like the Haslams and, now, the Greenbergs.
I'm not familiar with the situation. What is the beef people would have with Evan Greenberg?
The Trump bond thing was not popular, I gather, but other than that?
Jim
No. of Recommendations: 7
It seems that smell is one of the first senses that gets lost as we get older.
OT to this thread, but reduction in sense of smell is one of the best 10-year lead signals of Alzheimer.
Tails
(Learned that tidbit from the Baltimore Longitudinal Study on Aging (BLSA), run by Johns Hopkins, the western hemisphere's longest running aging study. It's not how good you can smell, it's just about your own chronological loss of that sense. If it all of a sudden takes a large reduction, that's the signal that you might be at risk for getting Alzheimer's in the next 10 years.
One other good 10-year lead warning for possible Alzheimer's is how well you can maintain a consistent gait. The test:
In a wide hallway (such as are in hospitals), place two small cones 10m apart, with a "starting line" taped to the floor abeam one of the cones.
The instructions are: "When I say begin, walk down to, and around, the other cone and return. Walk like you are in a business suit, but are late for an important meeting."
The researcher times you with a stop watch. This is done 3 times to establish an average.
The actual test involves doing 10 laps, without pauses, and each of the laps are timed. Same instructions on how fast to walk.
You might end up with a data set like (time in seconds): 22.1, 22.0, 22.3, 22.1, 22.3, 22.2, 22.4, 22.1, 22.2, 22.0. Relatively consistent. It's when those times start diverging that the 10-year increased chance of Alzheimer's warning flag goes up.)
BLSA is a 2.5 day series of tests, and it's quadrennial from ages 20-60, biannual from ages 61-80, and then annually from age 81 on. It's a full battery of physiological and cognitive tests. Highly recommended, if you can get get accepted into the study. As you might expect, the study is in Baltimore MD.
No. of Recommendations: 18
What is the beef people would have with Evan Greenberg?
The Trump bond thing was not popular, I gather, but other than that?I could live with Chubb attempting to make a profit by making a securitized loan to Trump. But I would be suspicious of the Greenbergs, who have already gotten Berkshire into trouble in the past, via Gen Re, and a deal that Brandon made with AIG which the SEC believed was not really an insurance deal but an attempt to make AIG's balance sheet look better, and led eventually to Brandon stepping down from Gen Re.
While the World Socialist Web Site would not be my usual go-to source for information, they do do a good job of summarizing here some of the things that make me suspicious of Maurice and Evan Greenberg:
In the fall of 2004, Spitzer filed civil charges against the largest insurance broker in the country, Marsh & McLennan. At the time, Marsh was run by Hank Greenberg’s son, Jeffrey. As an insurance broker, Marsh does not sell insurance itself, but helps corporations purchase insurance from companies such as AIG and ACE Ltd. In return for fees from the companies seeking insurance, it is supposed to arbitrate a bidding process between the insurers so as to get the best insurance plans for its clients.
According to Spitzer, however, the company ran what amounted to an insurance racket. Marsh was accepting fees not only from companies seeking insurance, but from the insurers as well. In return for fees from the insurers, Marsh would send companies their way. Marsh allegedly rigged the bidding process by getting friendly insurance companies to submit artificially high bids. The high bid meant that the contract would go to another insurer; however, in return for playing the game—and creating the appearance of a competitive bidding process—the insurance company would be favored the next time around.
Two midlevel executives at AIG pled guilty for their role in the bid-rigging process. The civil charges filed against Marsh are still open. To avoid criminal charges, Jeffrey Greenberg was forced out of Marsh five months before his father resigned at AIG. The allegations of bid-ridding also involved ACE Ltd., which is run by another of Hank Greenberg’s sons, Evan. ACE has a lawsuit pending against it for allegedly providing kickbacks to Marsh.https://www.wsws.org/en/articles/2005/03/aig-m24.h...Interestingly, Berkshire has already gotten into trouble with the SEC, because of Gen Re's dealings with the Greenbergs at AIG:
https://www.sec.gov/news/press/2010/2010-10.htmBrandon is back in Berkshire now, via Alleghany. And no doubt Buffett knows a lot more about the Greenbergs, via Brandon and others, than I ever will. I think he liked Maurice Greenberg, and had a hard time finding fault even with some of the shadier transactions they got involved in. But if something ever goes wrong with Chubb, I won't be surprised, and Greenbergs, like the Haslams, remind me of a couple of Munger quotes, one involving pigs, the other involving raisins...
dtb
No. of Recommendations: 3
OT to this thread, but reduction in sense of smell is one of the best 10-year lead signals of Alzheimer.
Shit, this had me really worried. But then I read more and it was the change. My sense of smell has never been very good and it certainly hasn't gotten better, but it also hasn't gotten that much worse after I got over the Covid.
No. of Recommendations: 0
what does this board think of warren and charlie's many quotes on reputation and integrity hypocritical when it comes to partying with chubb and pilot?
i dont think they were (or could be) coerced into any of these dealings. there is substantial background that berkshire's meddling with the economics of the pilot acq triggered the downward spiral of behavior by the haslams.
We can afford to lose money - even a lot of money. But we can't afford to lose reputation - even a shred of reputation.
It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently.
No. of Recommendations: 11
what does this board think of warren and charlie's many quotes on reputation and integrity hypocritical when it comes to partying with chubb and pilot?
i dont think they were (or could be) coerced into any of these dealings. there is substantial background that berkshire's meddling with the economics of the pilot acq triggered the downward spiral of behavior by the haslams.
I don’t know enough about Chubb to comment, but I live in Knoxville, home of Pilot, where this was very big news indeed.
The first raid on Pilot was in 2015, over a billing issue which had been going on for several years, perhaps a decade. (It involved not giving agreed upon rebates to long haul trucking firms, but mostly only the Mom & Pops were shafted because they didn’t have the accounting prowess to know they were being screwed.)
Buffett didn’t start acquiring Pilot until 2017, so clearly the acquisition had nothing to do with the monkey business. Now it is true that Buffett likes to buy upstanding, reputable businesses so this one might not quite fit the mold, but I note that elephants like Pilot, a privately owned but gigantic and national business are hard to come by, and I note that most, perhaps all of Pilot’s upper management has been broomed since the acquisition. That is also anomalous as Buffett likes to keep management intact, but then there is an exception for every rule, and keeping this management place was not an option either morally or legally.
Meanwhile: gas & oil, basic energy where Berkshire is comfortable, at least on several parts of the value chain, and now at retail as well.
No. of Recommendations: 22
there is substantial background that berkshire's meddling with the economics of the pilot acq triggered the downward spiral of behavior by the haslams.
What???
There is clear evidence that the Haslams manipulated the economics of the second tranche, ensuring that Berkshire would have to pay a lot more as a multiple of cash flow, paying almost 3x as much per share for the next 41.4% ($8.2b) as they had paid for the first 38.6% ($2.8b). After acquiring the second tranche Berkshire had a majority, and was able to make sure this didn't happen again. We don't know exactly how much Berkshire paid for the remaining 20%, but Berkshire thought it was worth $3.0b. So we got taken advantage of in the second tranche, paying a couple of billion too much.
Anyways, the Haslams didn't need any Berkshire meddling to demonstrate bad behaviour, long before the initial Berkshire acquisition. It surprises me that Berkshire would have wanted any association with the Haslams in the first place. Berkshire got an ok deal on the first tranche, got clearly ripped off on the second tranche because of Pilot executives manipulating earnings for the second tranche, and then Berkshire made sure it didn't get ripped off on the third. We don't know the details of the legal settlement, but it looks like the Haslams folded and settled because their behaviour was so clearly bad on the second tranche, it wasn't a good idea for them to take the case in front of a judge.
dtb
No. of Recommendations: 1
so warren's initial integrity vetting poor and\or he wanted the deal anyway?
somehow it still escaped him all the way until tranche 3?
2toTango.
and chubb is ongoing.
No. of Recommendations: 8
There is clear evidence that the Haslams manipulated the economics of the second tranche, ensuring that Berkshire would have to pay a lot more as a multiple of cash flow, paying almost 3x as much per share for the next 41.4% ($8.2b) as they had paid for the first 38.6% ($2.8b). After acquiring the second tranche Berkshire had a majority, and was able to make sure this didn't happen again. We don't know exactly how much Berkshire paid for the remaining 20%, but Berkshire thought it was worth $3.0b.
From the Q1 report:
"In January 2024, we acquired the remaining noncontrolling interests in Pilot for $2.6 billion, increasing our ownership of Pilot to 100%."
So, the second tranche implied a total value of $19.8 bn (41.4% for $8.2) but the final tranche for 20.0% implied a total value of $13 bn.
The negotiations for the exact number for the final tranche may have included an implicit credit for the high second tranche, so the "value" may be higher than 13, but presumably under 20.
As an aside, the "expensive" second tranche required Berkshire to record a non-cash gain in Q1 last year because the transaction pushed notional fair value above equity method value by $3.0 bn. It's unlikely that they will have written that back down again.
Jim
No. of Recommendations: 6
so warren's initial integrity vetting poor and\or he wanted the deal anyway?
somehow it still escaped him all the way until tranche 3?
2toTango.
There are multiple possibilities.
-he thought the Haslams were not so bad (they seemed like fraudsters to me, but Buffett has clearly looked into the history of their dealings more closely than I have so he may be right; in retrospect, I think I was right and he was wrong; see Tranche 2)
-he suspected they were fraudsters but he figured he could escape the consequences (maybe he didn't think they would go as far in ripping him off in Tranche 2 as they did, actually paying managers to cook the books)
-he has a blind spot or 2 in his integrity vetting for people he personally likes
-he doesn't like having so much cash accumulating, and convinces himself that this big $10b deal will be ok despite some misgivings
None of these are mutually exclusive, it can also be a mixture.
dtb
No. of Recommendations: 3
"In January 2024, we acquired the remaining noncontrolling interests in Pilot for $2.6 billion, increasing our ownership of Pilot to 100%."
So, the second tranche implied a total value of $19.8 bn (41.4% for $8.2) but the final tranche for 20.0% implied a total value of $13 bn.
The negotiations for the exact number for the final tranche may have included an implicit credit for the high second tranche, so the "value" may be higher than 13, but presumably under 20.
Ok, good point, I had missed that $2.6b number for Tranche 3. (I saw a January article where it said the amount was undisclosed, but as you point out Berkshire subsequently disclosed it in the Q1 report.)
So we have:
Tranche 1: 38.6% for $2.8b, i.e. implied total value $7.3b (in October 2017)
Tranche 2: 41.4% for $8.2b, i.e. implied total value $19.8b (in January 2023)
Tranche 3: remaining 20% for $2.6b, i.e. implied total value $13b (in January 2024).
Tranche 3 may indeed include some adjustment for the overpayment in Tranche 2, given the favourable legal position Berkshire presumably found itself in, with what seems like clear evidence of fraudulent behaviour in Tranche 2, so one might conclude that the implied total value was higher than $13b but presumably lower than $19.8b.
Still, I think it is unlikely that the value of Pilot doubled in the 6 years between the initial deal and the final deal, so it may be that Berkshire was not sure enough of the outcome of a lawsuit, and decided to accept a higher payout in Tranche 3 (based on the original terms of the deal) than what might have been obtainable.
No. of Recommendations: 1
BTW, i do not equate the overall ethics of warren with these parties.
my bar for him is high, and i expect him to avoid situations where enough of the public suspects counterparty sleaze.
(and i am sure he goes unheralded for situations where he does avoid them)
its just that those well-quoted reputation adages dont seem to match some public scenarios, and i dislike some of the BH cult aspects.
OT : i think warrens' most amazing accomplishment is the long horizon of global good he will do via the integrity of his kids and their established charities, not to mention the near perpetual output of his own.
