Oracle of Omaha goes on a buying spree
Warren Buffett buys into telecom, energy businesses during downturn in market
By Joe Ruff
ASSOCIATED PRESS
OMAHA, Neb. - It's feeding time for billionaire investor Warren Buffett.
The Oracle of Omaha is gobbling up assets on the cheap while many in the investment world are retreating or frozen with fear.
"When people are scared, he wants to be buying, and when they are greedy he will sell back to you," said Andy Kilpatrick, a stockbroker in Birmingham, Ala., and author of "Of Permanent Value: the Story of Warren Buffett."
Buffett has taken a particular interest of late in the severely beaten-down telecom and energy sectors.
On Thursday, Buffett's Berkshire Hathaway Inc. and Lehman Brothers Holdings Inc. gave troubled energy company Williams Cos. a $900 million loan. The collateral: Substantially all of Williams' oil and gas interests at Barrett Resources, which Williams acquired last year in a deal valued at about $2.6 billion.
Earlier in the week Buffett's MidAmerican Energy Holdings Co. agreed to buy struggling Dynegy Inc.'s 16,600-mile Northern Natural Gas Pipeline for $928 million in cash. Analysts said Dynegy prized the pipeline as a moneymaker for the future, but the company's financial problems forced the sale.
That was the second pipeline acquisition by Buffett this year. MidAmerican bought Williams' Kern River Gas Transmission Co. for $450 million in March.
In the telecom sector, where overcapacity from the '90's boom has laid waste to dozens of companies and forced several to seek bankruptcy protection, Buffett invested $100 million last month in struggling fiber-optic cable company Level 3 Communications Inc. of Broomfield, Colo. The transaction, made in conjunction with a $400 million investment by two other investors, immediately boosted Level 3 stock more than 50 percent on the day of the announcement.
There also were rumors that Buffett was interested in the bonds of struggling telecommunications company Qwest Communications International, Kilpatrick said.
"This is classic bargain basement," Kilpatrick said of Buffett's recent moves. "He's buying them from a distressed seller and he's sitting on a lot of money."
Buying at low prices into well-known, solid companies like Coca-Cola and American Express, Buffett built Omaha-based Berkshire into a huge conglomerate with a market value of more than $80 billion that owns insurance, restaurant, furniture and shoe companies.
Buffett, who declined a request for an interview, generally avoids high-tech companies, arguing he cannot tell which will be usurped by advances in technology.
That drew criticism from shareholders the last few years as they watched high-tech stocks soar, but with the collapse of the Internet sector, many thanked him at this year's annual meeting for holding to his convictions.
Still, he's not always right on the money.
Buffett's Berkshire lost book value last year for the first time in its history, largely because of insurance losses stemming from the Sept. 11 attacks. Its $3.77 billion loss in net worth in 2001 was a 6.2 percent drop in per-share book value from the year before.
Nevertheless, Berkshire made $795 million, or $521 per share, and outperformed the S&P 500, which showed an 11.9 percent loss in per-share book value.
Berkshire shares continue to hold up better than the broader market. For 2002, Berkshire shares are down 7 percent, versus the 25 percent decline in the S&P.
That track record has created a following.
Buffett, who is worth an estimated $35 billion and is the second richest person in the world behind Microsoft's Bill Gates, routinely requests to seal portions of quarterly filing reports with regulators, who have increasingly been reluctant to grant the request.
"No one has the clout, reputation and attention that he gets," said Stephen R. Wilcox, president of the brokerage Kelton International in New York.
It's just that not everyone can afford to buy Berkshire's Class A stock, which was trading in the $70,500-per-share range Friday.
Analysts warned of the risk trying to shadow Buffett's latest moves.
The pipeline deals give Buffett solid assets, Kilpatrick said, something stocks cannot.
Also, the amounts of money Buffett has put into the companies are small relative to what the multibillionaire could do, Wilcox said, and they do not put him at risk of substantial losses.
Telecommunications companies face a tough road, and analysts warn investors should be wary because of a glut of fiber-optic cable used to transfer data and voice communications and accounting scandals at WorldCom, Global Crossing and Qwest.
"You need a titanium stomach and the wisdom of Solomon to make money in this telecom meltdown," said Scott Cleland, chief executive officer of The Precursor Group, a telecommunications analysis firm in Washington.
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