Please be inclusive and welcoming to everyone, regardless of their background, experience, or opinions.
- Manlobbi
Halls of Shrewd'm / US Policy
No. of Recommendations: 4
https://finance.yahoo.com/news/buffetts-berkshire-...According to a complaint made public on Thursday in Delaware Chancery Court, Berkshire has unilaterally and without consent adopted "pushdown" accounting rules that artificially reduce Pilot's earnings before interest and taxes, and "grossly" reduce how much the Haslams would receive if they sold their remaining stake.
No. of Recommendations: 2
The family, including Cleveland Browns football team owner Jimmy Haslam, sold Berkshire a 38.6% Pilot stake for $2.8 billion in 2017 and another 41.4% stake for $8.2 billion in January. It said it has a right to sell the remainder under the same valuation methods on Jan. 1, 2024.
Looks like the Haslam's did pretty good:
2017 valuation $7.25bn (2.8/0.386)
2023 valuation $19.8bn (8.2/0.414)
Berkshire and SPY didn't do as well (both up about 90% 2017-2022).
Visited a Pilot a couple months ago. It was filthy. Coffee was bad. Was busy, though.
Called in a Flying J a few weeks ago and it was pleasantly clean and tidy. Late at night. Not busy.
No. of Recommendations: 0
Don't understand why Buffett/Abel agreed to such a complicated multi-phase deal? Was it at the insistence of the sellers?
Would have been better off just making an outright deal for the whole company, even if they paid a bit more up front.
BRK also replaced the CEO and CFO with Berkshire's managers. Though BRK normally does not replace managers of companies the buy. Maybe there were ill feelings which have festered and resulted in the lawsuit.
'We buy great companies who are run by great people and let them run their businesses locally,' Wright told Knox News. 'But there are times where Berkshire has decided to bring in their leadership team, under certain circumstances. I think they see this as just an opportunity to do so.'
https://www.knoxnews.com/story/money/business/2023...
No. of Recommendations: 22
Berkshire does phased deals like this when it is the wish of the sellers. There were at least two families involved at Pilot, not just the Haslams. Marmon with the Pritzker family was a similar phased transaction. Here is a post I wrote on another forum that lays out my best guess on the issue:
"If I had to guess, I would guess this: The second tranche of equity Berkshire purchased was extremely expensive and the price paid was based on a formula that was laid out in a contract years earlier. Berkshire paid what the formula spit out but Buffett was not happy about the way the game was played. But he honored his commitment. Then immediately Greg fires the Pilot CEO and CFO, brings in BHE and former BHE executives, and immediately exits a few of Pilot's newer lines of business. Now this disagreement over accounting methods / treatments comes public.
I think it is clear that Buffett didn't love what he saw and Greg is now in control cleaning it up. (notice the first listed defendant in the lawsuit is Abel) Buffett overpaid for the recent chunk of equity (much of which did not go to the Haslams, but to the other family). His reputation for honoring his commitments was more important that a few billion dollars.
Further confirmation would be when we see the goodwill write down on Pilot.
I'm sure he contrasts this behavior with the way the Pritzkers handled the multi-stage Marmon deal and this behavior compares unfavorably. Charlie would say that this (gaming of the system based on incentives in a contract) is exactly what we should expect and take it as a learning experience towards the next similar contract that MTO writes up for BRK. "
No. of Recommendations: 2
I seem to recall that Jimmy Haslam and a couple of his execs were caught overbilling some of Pilot's corporate accounts and had been doing it for years if I remember correctly. I think Jimmy threw his VP of sales under the bus, claiming he (Jimmy) didn't know anything about the overbilling and was let off in exchange for his cooperation with the prosecution.
I am once again reminded of Warren's observation that you can't do good business with bad people.
No. of Recommendations: 5
Just as an update to this, in case anybody wondered what the actual accounting change was -
Berkshire's acquisition of Pilot greatly increased the non-cash depreciation and amortization expense at Pilot, reducing their reported profitability under GAAP:
From BRK's 10Q on Pilot's earnings/expenses:
"Operating and other expenses include depreciation and amortization expense of $243 million in the second quarter of 2023 and $411 million in the five months ending June 30, 2023, a significant portion of which derives from property, plant and equipment and finite-lived intangible asset fair value remeasurements in connection with our application of the acquisition accounting method in 2023."
