Not even the mighty Warren Buffett could withstand the capital management pressure from investors. Last week policy changes by the Berkshire Hathaway board on when the company will conduct buybacks had the desired impact and stopped the rot in the company’s share price.
Berkshire shares rose 3.2% for the week, to be up 4.4% for July so far, but more important, they are now up for the year – 0.6%, against the S&P 500’s 4.8%.
The S&P 500’s performance is one of the benchmarks Buffett measures Berkshire annual growth by – its the S&P 500 with dividends included (like the ASX 200 accumulation index) with Berkshire’s per share book and market value compared to that index.
Up to last week’s change in policy, some analysts were starting to question if the billions in cash in the fabled Berkshire ‘float’ at March 31 was too much of a deadweight on the company’s share price which was stuck in a rut.
At the start of last week week, Warren Buffett gave away $US3.4 billion to charity in his annual share handover to various charitable groups. He handed over B shares to charitable foundations – some identified with his family but mostly to the the Bill & Melinda Gates Foundation.
By Friday Berkshire’s market value had risen by more than $US 16 billion.
The amendment could pave the way for a new share buyback, which could help soak up some of that $US108 billion cash pile that Berkshire is sitting on – but not till after the second quarter financial report is released at the end of next week.
At one stage the shares were up more than 5% the day after the change was announced.
Berkshire said in a statement after market close on Tuesday its board of directors had adopted an amendment that would allow share repurchases to be made at any time Mr Buffett and Charlie Munger, the company’s vice-chairman, “believe that the repurchase price is below Berkshire’s intrinsic value, conservatively determined.”
The previous share buyback program said the price paid for repurchased shares would not exceed 1.2 times the book value of shares at the time.
Buffett in the past two years has spent some of the cash float to build a more than $US44 billion stake in Apple and smaller amounts in the four major US airlines.
Early last year he and his partners in Kraft Heinz (3G of Brazil) tried to assault Unilever but badly miscalculated and were beaten off.
According to Berkshire’s annual reports, the company has not repurchased any shares since the original buyback program was implemented in September 2011 when it bought back the shares from the estate of a large long term shareholder.
In addition, the company has not declared a cash dividend since 1967. Maybe all that is about to change via buybacks.
