DJ What Was Buffett Thinking When He Bought Into USG?
25 Jun 15:35
By Richard Gibson
Of DOW JONES NEWSWIRES
DES MOINES, Iowa (Dow Jones)--Did Warren Buffett goof in buying a big chunk
of USG Corp. (USG) in November or did he anticipate the company's asbestos woes
and see gold in there somewhere?
Analysts and investors are revisiting the billionaire's possible rationale
behind the 14.98% stake his Berkshire Hathaway Inc. (BRKA BRKB) purchased in
the big gypsum-board maker after USG filed Monday for Chapter 11 bankruptcy
protection from creditors. USG cited huge asbestos liabilities.
Buffett may have gotten burned by USG on two counts. First, the value of his
stake in USG - assuming he still has it - has plunged. When his investment was
disclosed, analysts figured that Berkshire bought its stake in USG for around
$15 a share.
At Monday's price of $3.83, his 6.5 million shares could be worth about $72.3
million less than they were seven months ago.
Although the USG stake is a tiny part of Berkshire's investment portfolio,
the company could have a much bigger impact on Berkshire's insurance business.
As a major insurer of catastrophic risk, Berkshire's General Reinsurance unit
is said to be among the world's largest insurers with asbestos exposure.
Asbestos-related litigation has been hard on the insurance industry. A recent
study by A.M. Best, an insurance rating agency, said over the next 20 years
property/casualty insurers could pay $43.4 billion in asbestos claims - twice
what they already have paid out.
Early this year, Chester Street Insurance, a British firm, collapsed from
growing asbestos claims. Several U.S. insurers previously suffered similar
fates.
According to The Economist magazine, the Lloyd's of London insurance market
lost about $14 billion in the late 1980s and early 1990s from asbestos-related
claims. The Economist recently reported that a Lloyd's-related reinsurance
entity called Equitas has boosted itsnet claims reserves significantly in
anticipation of another wave of such claims.
General Re's potential exposure is unknown. Officials at Berkshire couldn't
be reached for comment. Typically Buffett doesn't make public announcements on
his investments.
USG isn't the famed investor's first encounter with an asbestos-burned
company. Last December Berkshire agreed to buy Johns Manville Corp., a leading
maker of insulation and roofing, for $1.92 billion. That transaction was
recently completed.
Manville was insulated by a legal wall - the Manville Personal Injury
Settlement Trust - which was said at the time to insulate it, and any acquirer,
from further liability from asbestos claims. Like USG, Manville sought refuge
in bankruptcy court, where it underwent reorganization.
"Does he know something we don't? I doubt it," said Trip Rodgers of UBS
Warburg. He also discounted the value of the stock in the future, saying that
after a bankruptcy-court supervised reorganization that there probably would be
little left for shareholders.
"This would probably be the one poor investment" Buffett has made recently in
the construction industry, Rodgers said.
-By Richard Gibson, Dow Jones Newswires; 515-282-6830;
dick.gibson@dowjones.com
(END) DOW JONES NEWS 06-25-01
03:35 PM |
