Buffett Discloses 4% Posco Stake; Investment Doubles
By Meeyoung Song and Kevin Cho
March 2 (Bloomberg) -- Warren Buffett, the world's second- richest man, disclosed that Berkshire Hathaway Inc. owns 4 percent of South Korea's Posco, an investment that has doubled in value. The company's shares surged.
The Omaha, Nebraska-based firm's investment in the third- largest steelmaker was worth $1.16 billion as of the end of last year, Buffett, 76, said in his annual letter to shareholders, released yesterday. Berkshire paid $572 million for the stock, without stating when it was purchased, the letter said.
Berkshire's interest in the Asian company comes as steelmakers' shares have been rising on expectations that there will be more takeovers in the industry. Mittal Steel Co. bought Arcelor SA last year for $38.3 billion and Tata Steel Ltd. agreed to buy Corus Group Plc for $12 billion in January.
``Steel companies' stocks have been in the spotlight because of mergers,'' said Kim Jun Ki, who manages about $1.1 billion in equities at Hanwha Investment Trust Management Co. in Seoul. The purchase is positive for Posco's shares as Berkshire is likely to be a long-term investor, Kim said.
Shares of Posco, the second-largest stock on the benchmark Kospi index, rose 11,000 won, or 3.1 percent, to close at 364,000 won. The company's stock, which rose as much as 4.1 percent during trade, was 60 percent held by overseas shareholders as of Feb. 28, according to Bloomberg data.
``Considering that Berkshire invests long term in blue-chip stocks, it shows that Posco's global investment strategies and overall corporate vision is being acknowledged by investors overseas,'' Yeon Kyung Heum, a Posco spokesman, said by phone today in Seoul.
PetroChina Stake
Berkshire, an insurance and investment firm, owned 3.49 million Posco shares as of the end of 2006, the letter said. Berkshire's other holdings included 12.6 percent of American Express Co. and 8.6 percent of The Coca-Cola Co. The only other Asian company listed was PetroChina Co., China's biggest state- run oil company, in which Berkshire had a 1.3 percent stake. Posco was not listed in Berkshire's holdings in 2005.
Posco's Chief Executive Officer Lee Ku Taek has said many times that the Pohang-based company needs to boost its market value to avoid being a takeover target. ``If our market value increases, reducing the merits of a takeover, then there won't be any mergers and acquisitions,'' Lee said on Feb. 23.
The company won shareholders' approval last month to ease rules restricting its ability to sell shares, strengthening its defenses against any hostile takeover attempt.
Nippon Steel
Chief Executive Lee, 60, has also strengthened Posco's ties with Japan's Nippon Steel Corp. by agreeing to increase their shareholdings in each other. Nippon Steel, the world's second- largest steelmaker, and Posco said in October that they would spend more than $900 million to increase the stakes.
``Posco is an attractive investment because its valuation is cheap compared to other global steelmakers,'' Kim at Hanwha Investment said.
Posco shares trade at 1.3 times the company's book value, or the amount by which assets exceed liabilities, according to CLSA Asia-Pacific Markets. That's cheaper than the 2.5 times for Nippon Steel and the 2.4 times for Japan's JFE Steel Corp., according to CLSA.
Shares of Nippon Steel, the world's second-largest steelmaker, jumped 63 percent during 2006 and Posco's stock climbed 53 percent. Posco's shares gained 18 percent this year, rising to a record 384,000 won on Feb. 23.
Profit Gains
Posco expects full-year operating profit this year to exceed the company's earlier forecast of 5 percent growth, amid strong global demand for its products. Operating profit may exceed the 4.1 trillion won ($4.4 billion) forecast by the company in January, Lee said on Feb. 23.
Investors comb Buffett's annual Berkshire Hathaway letters for insights into everything from investments and acquisitions to executive pay and economic policy. The letters disclose most of the company's holdings worldwide.
``Buffett is a long-term value investor, which means he sees something positive in Posco,'' said Lee Seung Jun, who manages about $750 million at CJ Asset Management Co. in Seoul. ``The news that he bought a Korean company will be positive for the overall market sentiment as well.''
Buffett released the latest letter alongside financial results for Berkshire Hathaway. Labeled ``the world's greatest investor'' in Robert Hagstrom's 1994 biography, Buffett created Berkshire from a failing textile maker.
Shares of Berkshire are up about 3,500 percent since 1987, six times more than the New York Stock Exchange Composite Index, which measures the performance of all the companies listed on the Big Board.
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