A look at share prices signals what is likely to be a celebratory mood at the annual shareholders’ meeting for Berkshire Hathaway this weekend. The price of a share in Warren Buffett’s conglomerate has increased by 12 percent since the beginning of the year.
After a weak phase, the legendary investor is returning to his old successes once again. The Berkshire share is performing significantly better than the broad S&P 500 share index, which has only managed to add 2 percent so far this year.
Mr. Buffett seems confident. “Last year was a good year,” he wrote in late February in his annual letter to shareholders, noting that the outlook for the U.S. economy was better than ever.
One shareholder, however, will cause a stir at the annual meeting. The Nebraska Peace Foundation is urging Berkshire to list the risks climate change poses to the group’s insurance division. To this end, the foundation has submitted a proposal that will be up for a vote at the meeting. As a reinsurer, the conglomerate faces particularly large risks.
But the Berkshire chief executive takes a relaxed view of the proposal, which he advises shareholders to vote against. While it is “highly likely” that climate change constitutes a great risk for the planet, he said, he isn’t worried about his company. “Insurance policies are calculated for each individual case, and prices are adjusted every year,” Mr. Buffett said.
The 85-year-old, who has headed Berkshire since 1965, enjoys broad support among shareholders. At the annual meetings, dubbed the “Woodstock for Capitalists” because of their festival-like atmosphere, Mr. Buffett and his second-in-command, Charlie Munger, are treated like rock stars. In the last 50 years, the two men have transformed Berkshire from a troubled textile manufacturer to one of America’s largest corporations.
Mr. Buffett continues to expand the company, completing the biggest takeover in its history in August.
This year, the shareholders’ meeting will be transmitted via live stream for the first time. Video transmissions were forbidden in the past, forcing some 40,000 shareholders worldwide to travel to company headquarters in Omaha for last year’s meeting.
Mr. Buffett continues to expand the company, completing the biggest takeover in its history in August. For $37.2 billion he acquired the industrial corporation Precision Castparts, which is expected to make a significant contribution to Berkshire’s sales and profits in the future. In addition to equity stakes and the insurance business, Berkshire also has a large energy division and owns more than 80 small and mid-sized companies.
Berkshire will also release its financial figures for the first quarter on Saturday. Even without the issue of climate risks, the insurance business will be a trouble spot this year. Mr. Buffett believes conditions will remain challenging, partly because of tough competition from hedge funds, which are pushing into the market and forcing down prices.
That’s why he’s restructuring Berkshire’s powerful reinsurance division. The new head of Berkshire subsidiary General Re will not report directly to Mr. Buffett in the future, but to his confidant Ajit Jain (the cousin of former Deutsche Bank co-CEO Anshu Jain), who heads the group’s largest reinsurer, the Berkshire Hathaway Reinsurance Group.
The regrouping could create synergies, according to Gregg Warren of investment research firm Morningstar. But the move raises new questions about who will succeed the legendary investor at the company’s helm, a position for which Mr. Jain was long viewed as the top candidate. But because he will assume greater responsibility in the complex insurance industry in the future, “it makes more sense for Jain to stay put and for Greg Abel, who has had more experience with mergers and acquisitions and operations during his time running Berkshire Hathaway Energy, to fill the CEO role,” the Morningstar analyst concludes. Mr. Abel currently heads Berkshire’s energy division.
Mr. Buffett — who is the chairman, CEO and chief investment officer all in one — has remained tightlipped over who he thinks should run the company one day. However, that is expected to change once he is no longer at the helm of Berkshire. It is clear that his son Howard will head the board of directors and maintain corporate culture. The position of chief investment officer will be shared by Mr. Buffett’s two portfolio managers, Todd Combs and Ted Weschler. The only job that hasn’t been spoken for yet is that of chief executive.
Mr. Buffett has repeatedly stated that Berkshire is not interested in restructuring companies a la private equity and then selling them again after a few years. He buys companies to keep them.
In the meantime, Mr. Buffett has also been looking for takeover targets among Germany’s small- and medium-sized enterprises, which are collectively known as the Mittelstand. But he’s picky.
Last year, Mr. Buffett acquired Hamburg-based motorcycle equipment manufacturer Detlev Louis Motorradvertriebs GmbH. In doing so, he “cracked the German code,” as the legendary investor proudly put it at the time. To select the right companies Mr. Buffett, the world’s third-richest man, uses the services of Cologne management consultant Zypora Kupferberg, who orchestrated the €400 million ($454 million) deal with Louis.
“We are very active and in constant communication with Berkshire Hathaway,” Ms. Kupferberg told Handelsblatt.
Mr. Buffett has instructed his portfolio manager Ted Weschler to search for takeover targets in Germany and Europe. Mr. Weschler manages a stock portfolio worth billions and works closely with Ms. Kupferberg.
But few companies are a good fit for Berkshire Hathaway, which owns at least 80 companies, many of them former family-owned businesses. “Companies that are offered for sale to a large number of private equity companies are not an option for Berkshire,” Ms. Kupferberg explained.
Mr. Buffett has repeatedly stated that Berkshire is not interested in restructuring companies a la private equity and then selling them again after a few years. He buys companies to keep them. This is why he is only interested in businesses that are successful and can stay that way in the long term, without requiring any intervention by his holding company.
“We seek companies with outstanding management,” Ms. Kupferberg said. This also applies to second-tier managers, who will be expected to run the business one day.
For Berkshire, the price also has to be right. Ms. Kupferberg believes the current market is a sellers’ market. In times of high liquidity and low interest rates, she explained, financial investors are willing to pay a lot of money for companies, thereby driving up prices.
But Mr. Buffett is in no particular hurry. He wants to seal at least one more deal in Germany by 2020. Preparations are in full swing.
Astrid Dörner is part of Handelsblatt’s team of correspondents covering finance and U.S. corporations in New York. To contact the author: firstname.lastname@example.org