Buffett to Update His Acquisition Hunt; Investors Are Curious if Berkshire CEO Is Still Looking for Big Deals After Heinz

Updated February 28, 2013, 5:23 p.m. ET

Buffett to Update His Acquisition Hunt

Investors Are Curious if Berkshire CEO Is Still Looking for Big Deals After Heinz


Two years ago, Warren Buffett told Berkshire Hathaway Inc. BRKB +0.94%shareholders he was on the lookout for major acquisitions, as part of his unending effort to profitably employ the buckets of cash his company collects every month.

Since then, however, the billionaire investor has fired what he called his “elephant gun” just twice. Berkshire in February said it would join with a Brazilian investment firm to buy ketchup maker H.J. Heinz Co. HNZ -0.11% for $23.4 billion. In 2011, Berkshire bought engine lubricant-maker Lubrizol Corp. for $9 billion.


Shareholders watch as Warren Buffett, chairman and CEO of Berkshire Hathaway, deploys an oversize bat against table tennis prodigy Ariel Hsing in Omaha, Neb., in May.

The challenge of finding a big target at the right price will again be on investors’ minds when Berkshire files its annual report Friday afternoon. The report includes the shareholder letter penned by the 82-year-old Mr. Buffett, which over the years has been the source of many of the bon mots for which the Omaha, Neb., company’s chairman and chief executive is known.

There have been large stock purchases, such as a 2011 acquisition of $10.7 billion in International Business Machines Corp. IBM -0.74% stock, and smaller recent deals such as the purchase of Oriental Trading Co. for an undisclosed price.

But largely absent have been the multibillion-dollar takeovers that over time transformed Berkshire from a widely followed stock portfolio to a highly profitable conglomerate valued at over $250 billion. Before Heinz, the most recent megadeal was the 2010 purchase of railroad Burlington Northern Santa Fe Corp. for $26.3 billion.

Buffett Bon Mots

Comments Berkshire Hathaway chief executive Warren Buffett has made in his annual shareholder letter:

  • 2012: The board is ‘enthusiastic about my successor as CEO, an individual…whose managerial and human qualities they admire.’
  • 2011: ‘Our elephant gun has been reloaded, and my trigger finger is itchy.’
  • 2010: ‘We will never become dependent on the kindness of strangers. Too-big-to-fail is not a fallback position at Berkshire.’
  • 2009: ‘Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.’
  • 2008: ‘You only learn who has been swimming naked when the tide goes out – and what we are witnessing at some of our largest financial institutions is an ugly sight.’
  • 2003: ‘Derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.’

Source: the company

It isn’t that Mr. Buffett hasn’t been searching. Last year, his company participated in discussions to buy NYSE EuronextNYX -0.27% the parent of the New York Stock Exchange. The two sides didn’t agree on price, and NYSE eventually announced an agreement to sell itself to IntercontinentalExchangeInc. ICE -0.17% for $8.2 billion.

In May, Mr. Buffett said he walked away from a potential $22 billion deal because of a difference in price, and because it would have meant selling some stock from Berkshire’s portfolio to help pay for the acquisition.

The company had $47.8 billion in cash and cash equivalents as of Sept. 30, far in excess of the $20 billion or so Mr. Buffett has said he would like to hold on Berkshire’s balance sheet. Berkshire is spending $12 billion in cash for the Heinz deal. The company can also sell securities it owns to pay for large deals.


One likely reason is that Mr. Buffett simply hasn’t found a company he likes enough at a price that is right. “Often, businesses are priced ridiculously high against what can likely be earned from investments in stocks and bonds,” he said in his 2011 letter.

Investors are also likely to parse the letter for any comments on Berkshire shares. Mr. Buffett has said he would not use Berkshire shares to pay for deals unless the shares are fairly priced. Berkshire’s Class A shares have risen around 27% in the past 12 months and recently hit a record high.

From the Mouth of Warren Buffett

Since 1977, Berkshire Hathaway CEO Warren Buffett has written nearly 400,000 words in his annual letters to shareholders. See how often Mr. Buffett has mentioned current division bosses, plus see analysis from two research groups on how positively he speaks of each.


In December, Berkshire bought $1.2 billion of its own Class A shares from the estate of a “longtime shareholder.” The move showed that Mr. Buffett believed Berkshire shares were undervalued at the time, and spending cash on repurchasing shares was a better use of capital than acquisitions.

Besides discussing Berkshire’s recent performance, Mr. Buffett’s letter Friday is likely to detail a change to the format of the company’s annual shareholders’ meeting, which draws over 30,000 individuals to Omaha each spring.

Last year, Mr. Buffett had three Wall Street analysts join shareholders and a panel of journalists in questioning him and his business partner Charlie Munger. Mr. Buffett said his goal was to broaden the conversation and field more questions about Berkshire’s operations.

Of the three insurance analysts who questioned Mr. Buffett at last year’s meeting, one will be on the panel this year.

Mr. Buffett may fill one of the other two spots with an analyst who covers industrial companies, reflecting how Berkshire now derives the bulk of its profits from nonfinancial businesses such as railroads and utilities, according to people familiar with the situation.

It is unclear who will fill the third spot, but some investors think it may be an individual with a contrarian view of Berkshire. Mr. Buffett declined to discuss the change, saying he would explain it in his letter.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: