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Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A) ❤
No. of Recommendations: 14
No. of Recommendations: 10
Interesting piece from Rational Walk on BRK acquiring the balance of BHE. Well worth a read...
Indeed. An excerpt:
I wrote about Greg Abel’s sale of his 1% stake in BHE of 740,961 shares for $870 million which implied a price per share of $1,174.15. Just a little over two years later, the Scott family has sold for just $650 per share. This implies that BHE’s valuation has dropped from ~$88.8 billion to ~$48.9 billion, a decline of nearly 45%. It is interesting to note that a prior transaction to repurchase some of Mr. Scott’s interest in March 2020 implied a valuation of $53.4 billion. It would appear that Greg Abel received a rich price for his shares in retrospect. Mr. Abel subsequently used part of the cash proceeds to purchase shares of Berkshire Hathaway in September 2022.
...
Walter Scott Jr. was a longtime friend of Warren Buffett, a Berkshire Hathaway board member, and a partner in BHE since Berkshire took its initial ownership stake nearly a quarter century ago. I believe that Mr. Buffett did not seek any advantage for Berkshire when estimating BHE’s market value in the company’s transactions with Mr. Abel and with Mr. Scott’s family. However, he also clearly insisted on a lower valuation now that BHE’s future prospects seem dimmer.
I agree that Buffett likely set rational parameters to evaluate Abel's and Scott's minority shares and offered to repurchase them at a fair price, so I agree with RW's conlusion : BHE's valuation has dropped, almost by half, given the current regulatory uncertainties, and Berkshire is unlikely to plow a lot of capital into this business, one of the two utilities we thought might be able to absorb a lot.
It makes the quandary of what to do with $300b in cash all the more acute, especially with stock market prices at record highs. But maybe we should look at this differently. Starting at levels like today's, it seems like a reasonable hope that there might be a pretty major correction in the next few years. And while it would be nice for this to happen while Buffett is still in charge, that might not be our best bet - he has actually not proven himself to be particularly greedy, the last 2 times the world was feeling fearful, so why would he be, next time? Maybe having all that cash on hand when Abel/Combs/Wexler are in charge will actually turn out to be a good thing.
dtb
No. of Recommendations: 3
Have only skim read this but was surprised at the cult comments wrt Berkshire current valuation. From what I have read the overwhelming majority of Berkshire shareholders recognise that Berkshire is fairly valued or even richly valued.
Does this transaction put a value on BHE and what is it? I must have missed that important part.
Interesting but not unsurprising that some B shares were issued…Berkshire is up a lot of late and some areas are struggling a little. Nothing to worry about overall though.
No. of Recommendations: 1
“This implies that BHE’s valuation has dropped from ~$88.8 billion to ~$48.9 billion, a decline of nearly 45%.”
Oh that is indeed interesting…
No. of Recommendations: 11
I agree that Buffett likely set rational parameters to evaluate Abel's and Scott's minority shares and offered to repurchase them at a fair price, so I agree with RW's conclusion : BHE's valuation has dropped, almost by half, given the current regulatory uncertainties,
Bear in mind that there may be a simpler explanation. The parties may have agreed long ago on a valuation formula for the private shares, which would likely have had a heavy weighting to something like recent free cash flow or net earnings. (Pilot may be an example, though an unfortunate one) Since it is a utility, this is particularly likely, as all parties would expect owner earnings to have been fairly smooth. The recent weak spot for business results, lasting or not, would then have caused the formula to give a much lower price.
Personally I doubt even these very knowledgeable parties would have tried to handicap the future regulatory environment and use that to arrive at a specific lower price as a result.
Has anyone done the math with all the moving parts (including the BRK share exchange at current market prices) to come up with the implied valuation for the whole of BHE?
Jim
No. of Recommendations: 4
I agree that Buffett likely set rational parameters to evaluate Abel's and Scott's minority shares and offered to repurchase them at a fair price, so I agree with RW's conclusion : BHE's valuation has dropped, almost by half, given the current regulatory uncertainties, ...
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Bear in mind that there may be a simpler explanation. The parties may have agreed long ago on a valuation formula for the private shares, which would likely have had a heavy weighting to something like recent free cash flow or net earnings. I think we are saying the same thing. There are parameters like free cash flow and earnings that have taken a big hit from regulatory decisions, and there is probably a prior agreement to use these valuation parameters to set the price at which Berkshire would repurchase the minority shares.
Has anyone done the math with all the moving parts (including the BRK share exchange at current market prices) to come up with the implied valuation for the whole of BHE? Yes, Rational Walk's assessment is that the deal, including the BRK.B shares issued and the price paid for the debt, amounts to a total valuation of $48.9 b, way down from the implied $88.8b valuation that Abel got for his shares 2 years ago.
https://rationalwalk.com/berkshire-hathaway-acquir...
No. of Recommendations: 0
What, specifically, are the regulatory decisions that people are objecting to?
No. of Recommendations: 2
What, specifically, are the regulatory decisions that people are objecting to?
As I understand it, regulators did not require/allow funding to bury power lines, yet are now holding utilities responsible for fires caused by above ground power lines.
No. of Recommendations: 8
RW is obviously intelligent but this part of that essay is dumb and destructive:
Given the utter stupidity of most politicians, particularly those running “progressive” states whose entire political “brand” is to vilify private enterprise and “billionaires,
Similar to the crap from Musk someone posted here recently.
Let’s keep the vitriol out of otherwise rational discussion.
Shaun
No. of Recommendations: 3
"Given the utter stupidity of most politicians, particularly those running “progressive” states whose entire political “brand” is to vilify private enterprise and “billionaires, ..."
Similar to the crap from Musk someone posted here recently.
Let’s keep the vitriol out of otherwise rational discussion.
Fair enough. It's a long way from being their 'entire' political brand. Would that it were not such a large part.
dtb
No. of Recommendations: 18
"Fair enough. It's a long way from being their 'entire' political brand. Would that it were not such a large part."
Actually I think it is a way for the weak minded to falsely summarize their opponent's political positions in order to more easily dismiss them in their own mind.
Buffett and Gates are pretty progressive, it is laughable to think their brand is vilifying billionaires.
If you cannot accurately summarize your opponent's views in a way they would agree with then you aren't really qualified to debate those views.
No. of Recommendations: 6
Buffett and Gates are pretty progressive, it is laughable to think their brand is vilifying billionaires.
If you cannot accurately summarize your opponent's views in a way they would agree with then you aren't really qualified to debate those views.
All right, then you should convince me that vilifying billionaires is not part of leftwing politicians schtick. And notice that the assignment concerns leftwing politicians, not leftwing businessmen.
No. of Recommendations: 14
"All right, then you should convince me that vilifying billionaires is not part of leftwing politicians schtick. "
I should do your work for you? Hmm. Interesting take. Also, asking to show a negative is pretty impossible eh? So I will start with the big ones. Bill Clinton, Al Gore, John Kerry, Barack Obama, Hilary Clinton, Joe Biden, Kamala Haris. All at least somewhat progressive politicians, none vilifies billionaires.
Of course you must recognize that a politician pointing out that the playing field is tilted in favor of billionaires isn't vilifying billionaires although some lazy thinkers like to pretend it is the same because it is easier to dismiss their arguments.
"And notice that the assignment concerns leftwing politicians, not leftwing businessmen."
JB Pritzker says hi.
Also, when Buffett and Gates make their progressive comments they are making political comments, not business comments.
Are Rachel Maddow and Sean Hannity considered politicians or businesspeople? They have never run for any office, but most people would consider their endeavors to be political.
No. of Recommendations: 10
“RW is obviously intelligent but this part of that essay is dumb and destructive:
Given the utter stupidity of most politicians, particularly those running “progressive” states whose entire political “brand” is to vilify private enterprise and “billionaires,
Similar to the crap from Musk someone posted here recently.
Let’s keep the vitriol out of otherwise rational discussion.”
Well, it was actually all fine here until you decided you couldn’t resist making an obvious political statement about it. Good job in getting a political topic going!
No. of Recommendations: 6
All right, then you should convince me that vilifying billionaires is not part of leftwing politicians schtick. "
I should do your work for you? Hmm. Interesting take.
This is just what you yourself said we should all do, in line with Munger’s exhortation: the obligation to marshal the opposite side’s most compelling arguments and express them in a convincing way.
And no, people with strong political views are not per se politicians.
But I won’t continue this discussion which is, as others have correctly pointed out, not germane to this board and which is likely unproductive for everyone.
DTB
