Warren Buffett’s Berkshire Hathaway has bought a large minority stake in Pilot Flying J, the largest North American truck stop operator, and will become the majority owner in six years time.
Pilot Flying J has more than 750 locations in 44 American states and Canada selling petrol, diesel fuel, and convenience goods, and offering trucks more than 70,000 parking spaces and 5,000 diesel lanes.
This deal gives Buffett and interest in eclectic part sof the American economy -Berkshire owns a big national car dealer, has small retail interests in supplying the sector, and selling goods like furniture. Berkshire has sporting goods products, shoes, real estate agencies, trailer home manufacturing (and financing), fractional ownership of private jets, a brick company, metalworking companies, home furnishings, clothing manufacturing, some jewellery retailing and owns around 144 newspapers papers of varying sizes.
That is in addition to the insurance companies, power, high tech manufacturing, energy as well as the huge (near $US150 billion investment portfolio with his big stakes in Apple, Bank of America, Wells Fargo, Coke and IBM).
The company’s formal name is Pilot Travel Centers LLC.
While terms for Tuesday’s deal were not disclosed, Pilot Flying J is the 15th-largest private company in the United States, with estimated annual sales of more than $US20 billion The family-run company employs more than 27,000 people. Bloomberg put a value on the company of $US4.5 billion.
Berkshire bought 38.6% of Pilot Flying J from several investors and plans to boost ownership to 80% in 2023. Until 2023 the controlling Haslam family retains a 50.1% stake, and will retain 20% once Berkshire takes over.
Most of the stake bought yesterday by Berkshire came from a group of private equity investors, including CVC which bought a 47.5% stake in 2008, reduced it in a refinancing in 2014 which cut that to just under 20% which CVC said at the time would be sold in 2017.
US media reports said that the Haslam family owned 59% of Pilot Flying J through an entity called Pilot Corp., and “other unaffiliated third parties” owned the other 41%. These included Chicago-based BDT Capital Partners; Miguel Loya of Houston; LS Squared LP of Rogers, Arkansas.; Brad Martin of Memphis, and Enterprise Investment Partners LP, also of Memphis, both from Tennessee.
Pilot Flying J has faced scrutiny in recent years over whether employees withheld diesel fuel rebates from customers, and in 2014 paid a $US92 million fine to settle a US criminal probe. Several executives were later criminally charged (but not Jimmy Haslam).
“Pilot Flying J is built on a longstanding tradition of excellence and an unrivaled commitment to serving North America’s drivers,” said Warren Buffett, chairman, president and CEO of Berkshire Hathaway. “Jimmy Haslam and his team have created an industry leader and a key enabler of the nation’s economy. The Company has a smart growth strategy in place and we look forward to a partnership that supports the trucking industry for years to come,”Buffett said in a statement (http://www.berkshirehathaway.com/news/oct0317.pdf).
The investment in one of the biggest private U.S. companies marks a return to large deal for Buffett, who’s had a relatively quiet 2017 after walking away from a $US143 billion bid to acquire Anglo-Dutch consumer goods giant Unilever through the 26% owned Kraft Heinz company. Berkshire has also taken a 9.8% stake in a medium sized real estate investor called Store Capital for $US377 million and invested around $C153 million for a 19% stake in Home Capital, the Canadian sub prime home lender. Buffett wanted to lift the stake to 38% at a cost of $C400 million, but that was rejected by shareholders last month. Berkshire also provided a $C2 billion line of credit which helped stabilise hOme and has now been repaid.
His bid to purchase Oncor Electric Delivery Co, Texas’s biggest power utility, was topped by Sempra Energy (from San Diego) in August, with help from activist investor Paul Singer who bought up the target’s debt to block Buffett and back the rival bidder.
His biggest deal this year though wasn’t so much a new investment but spending around $US5 billion exercising warrants on preferred shares in Bank of America that made him its biggest shareholder with a value of $US17 billion, for a current profit of more than $US12 billion. He paid $US7.14 for his 700 million shares. Bank of America shares are just under $US26 each. That values his stake at more than $US18 billion, so he has added another $US1 billion in the past month.
Buffett said this week that Bank of America is now his favourite and “We will be holders of BofA stock for a long, long, long time,” he added in an interview on CNBC.
Berkshire is now the biggest shareholder in Bank of America, as it is in the scandal hit Wells Fargo which for years was his favourite bank stock until the fake bank accounts and dud insurance scandals hit ago, forcing a management and board shake up, and leading to fines from regulators and other costs.
