Buffett whiffs on mergers, prepares for succession
Sat Mar 5, 2005 04:16 PM ET
By Jonathan Stempel
NEW YORK, March 5 (Reuters) - Warren Buffett on Saturday said he "struck out" trying to make big acquisitions in 2004, and deploy some of his Berkshire Hathaway Inc. (BRKa.N: Quote, Profile, Research) (BRKb.N: Quote, Profile, Research) holding company's swelling, $43.4 billion cash hoard.
UPDATE 4-Berkshire profit rises 40 pct, has $43 bln cash
Buffett whiffs on mergers, prepares for succession
UPDATE 3-Berkshire profit rises 40 pct, has $43 bln cash
The world's second richest person said he wants to make at least one big acquisition in 2005, the 40th anniversary of his taking over Berkshire, then a textile maker. The 74-year-old also said directors of the Omaha, Nebraska-based company are "well prepared" for naming an eventual successor.
Berkshire units sell such things as insurance, paint, mobile homes and underwear. The company also has big investments in such brand-name businesses as American Express Co. (AXP.N: Quote, Profile, Research) , Coca-Cola Co. (KO.N: Quote, Profile, Research) and Gillette Co. (G.N: Quote, Profile, Research) .
It reported a full-year profit of $7.31 billion, or $4,753 per share, on revenue of $74.4 billion. Its cash stake grew by 21 percent from $36 billion.
"My hope was to make several multi-billion dollar acquisitions that would add new and significant streams of earnings," Buffett said in his annual letter to Berkshire shareholders. "But I struck out."
He called the cash stake "not a happy position," but said he and Vice Chairman Charles Munger will look to buy "more interesting assets" in 2005.
Thomas Russo, who helps invest more than $1 billion at Gardner Russo & Gardner in Lancaster, Pennsylvania, said Buffett can prudently sit on the cash.
"The cash stake is a consequence of Buffett's trying to protect his capital against the adverse effects of rising interest rates," said Russo, whose firm invests 8 percent of its assets in Berkshire. "I don't expect Buffett will have to wait long to put the money to work."
ACQUISITIONS
Berkshire wants to make a $5 billion to $20 billion acquisition. It is generally seeking companies, in part, with at least $75 million of pre-tax earnings, consistent earning power, good returns on equity with little debt, and easy-to-understand businesses.
Recent acquisitions have included food distributor McLane Co., purchased from Wal-Mart Stores Inc. (WMT.N: Quote, Profile, Research) for $1.5 billion in 2003, and mobile home builder Clayton Homes Inc., bought that year for $1.7 billion.
"What Charlie and I would like is a little action now," Buffett said. "We don't enjoy sitting on $43 billion of cash equivalents that are earning paltry returns. Instead, we yearn to buy more fractional interests similar to those we now own or, better still, more large businesses outright."
SUCCESSION
Eventually, the septuagenarian Buffett and octogenarian Munger will have to turn over the business to someone else.
"You can be sure that the directors and I have thought through the succession question carefully and that we are well prepared," Buffett said.
The last six words and the reference to the directors were not part of a similar statement in last year's annual report.
"The most difficult part of Buffett's job has already been done: the assembling of businesses and investments into the holding company," said James Armstrong, president of Henry H. Armstrong Associates in Pittsburgh, which invests 18 percent of its $450 million of assets in Berkshire shares. "Continuing that momentum will be much less difficult."
One company that had an larger cash stake than Berkshire, Microsoft Corp. (MSFT.O: Quote, Profile, Research) , last year used a good chunk of it to pay a one-time $3 per share dividend to shareholders.
Berkshire has not declared a cash dividend since 1967.
But one person likely to have influence on Buffett's decisionmaking is the only person wealthier than Buffett -- Bill Gates. He's the chairman of Microsoft. He also sits on Berkshire's board of directors.
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