Has Warren Buffett blinked and fallen into line with the prevailing Wall Street belief that favours share buybacks?
Not that Buffett was against the idea, its just that for years he has set very high benchmarks for Berkshire Hathaway to meet to allow them to be done.
But now thanks to a change in those benchmarks the chances of Berkshire Hathaway buying back shares have improved.
The company said on Tuesday it had amended its stock buyback program to give its Chairman and Chief Executive Warren Buffett and Vice Chairman Charlie Munger more flexibility and power in deciding when to repurchase Berkshire shares.
The new policy approved by Berkshire’s board will allow Buffett and Vice Chairman Charlie Munger authorise buybacks when both believe the repurchase price is “below Berkshire’s intrinsic value,” a determination that would be made “conservatively.” (i.e. it allows them plenty of latitude)
Berkshire’s old policy said repurchase prices would not exceed 1.2 times book value per share, or assets minus liabilities.
The new policy is being seen as a response to the increasing difficulty Buffett and Berkshire face in deploying the company’s so-called float which was more than $US108 billion of cash and equivalents at March 31.
"The current policy whereby share repurchases will not be made if they would reduce the value of Berkshire’s consolidated cash, cash equivalents and U.S. Treasury Bills holdings below $20 billion will continue,” said the company in a statement.
Berkshire raised its repurchase threshold to 1.2 times book value from 1.1 times in December 2012 when it spent $US1.3 billion on share repurchases that month, mainly from the estate of a longtime shareholder.
Berkshire has not disclosed any subsequent repurchases under this program.
It also said it will not buy back shares until it has released its second-quarter earnings on August 3.
Berkshire’s Class B shares rose 1.2% in Tuesday’s after hours session after closing down 0.8% in regular trade.
