Berkshire shares surge as Buffett wins more power for stock buybacks

By Jonathan Stempel and Trevor Hunnicutt (Reuters) - Berkshire Hathaway Inc shares rallied on Wednesday after the conglomerate's board gave its billionaire chairman, Warren Buffett, more freedom to conduct stock buybacks and whittle down a $108.6 billion stockpile of cash. The company's Class A shares climbed $14,470, or 5 percent, to $302,970 in afternoon trading, while its Class B shares rose $10.32, or 5.4 percent, to $200.73 on the New York Stock Exchange. Berkshire announced late Tuesday that Buffett and Vice Chairman Charlie Munger, who make major decisions on allocating capital, may now repurchase stock when both believe the price is below Berkshire's 'intrinsic value,' a determination that would be made 'conservatively.' The old policy prohibited buybacks when the stock price exceeded 1.2 times book value per share, or assets minus liabilities.

Reuters July 19, 2018 01:05:29 IST
Berkshire shares surge as Buffett wins more power for stock buybacks

Berkshire shares surge as Buffett wins more power for stock buybacks

By Jonathan Stempel and Trevor Hunnicutt

(Reuters) - Berkshire Hathaway Inc shares rallied on Wednesday after the conglomerate's board gave its billionaire chairman, Warren Buffett, more freedom to conduct stock buybacks and whittle down a $108.6 billion stockpile of cash.

The company's Class A shares climbed $14,470, or 5 percent, to $302,970 in afternoon trading, while its Class B shares rose $10.32, or 5.4 percent, to $200.73 on the New York Stock Exchange.

Berkshire announced late Tuesday that Buffett and Vice Chairman Charlie Munger, who make major decisions on allocating capital, may now repurchase stock when both believe the price is below Berkshire's "intrinsic value," a determination that would be made "conservatively."

The old policy prohibited buybacks when the stock price exceeded 1.2 times book value per share, or assets minus liabilities.

Berkshire shares recently traded closer to a 1.4 times multiple. The Omaha, Nebraska-based company has not disclosed any buybacks since December 2012.

"We're surprised that this took so long," wrote Meyer Shields, an analyst at Keefe, Bruyette & Woods who rates Berkshire "market perform."

Shields called the old buyback policy "almost obsolete," saying the recent slashing of the U.S. corporate tax rate materially boosted book value by reducing Berkshire's deferred tax liabilities but "with almost no impact on intrinsic value."

The cash hoard gives Buffett power to make what he calls "elephant" sized acquisitions of whole companies.

He has, however, lamented his inability to find an elephant since paying $32.1 billion for aircraft parts maker Precision Castparts in January 2016.

Buffett signalled a possible policy shift at Berkshire's annual meeting on May 5. He told shareholders that if Berkshire could not deploy capital effectively, buybacks based on intrinsic value might be a means to return capital to them.

"It'd be unlikely we'd do it by special dividend," he said. "It'd be more likely we'd do it by repurchase if the repurchase didn't result in us paying a price above intrinsic value per share. We're never going to do anything that we think is harmful to continuing shareholders."

Buffett in recent months spent some cash to build a more than $40 billion stake in iPhone maker Apple Inc .

Berkshire said it will not conduct buybacks that reduce its cash stake below $20 billion. That provides a cushion for potential large claims losses at Berkshire's insurance units.

No buybacks under the new policy will occur before Berkshire releases second-quarter results, scheduled for Aug. 3.

(Reporting by Jonathan Stempel and Trevor Hunnicut in New York; Editing by Steve Orlofsky)

This story has not been edited by Firstpost staff and is generated by auto-feed.

Updated Date:

TAGS:

also read

France, Germany to agree to NATO role against Islamic State - sources
| Reuters
World

France, Germany to agree to NATO role against Islamic State - sources | Reuters

By Robin Emmott and John Irish | BRUSSELS/PARIS BRUSSELS/PARIS France and Germany will agree to a U.S. plan for NATO to take a bigger role in the fight against Islamic militants at a meeting with President Donald Trump on Thursday, but insist the move is purely symbolic, four senior European diplomats said.The decision to allow the North Atlantic Treaty Organization to join the coalition against Islamic State in Syria and Iraq follows weeks of pressure on the two allies, who are wary of NATO confronting Russia in Syria and of alienating Arab countries who see NATO as pushing a pro-Western agenda."NATO as an institution will join the coalition," said one senior diplomat involved in the discussions. "The question is whether this just a symbolic gesture to the United States

China's Xi says navy should become world class
| Reuters
World

China's Xi says navy should become world class | Reuters

BEIJING Chinese President Xi Jinping on Wednesday called for greater efforts to make the country's navy a world class one, strong in operations on, below and above the surface, as it steps up its ability to project power far from its shores.China's navy has taken an increasingly prominent role in recent months, with a rising star admiral taking command, its first aircraft carrier sailing around self-ruled Taiwan and a new aircraft carrier launched last month.With President Donald Trump promising a US shipbuilding spree and unnerving Beijing with his unpredictable approach on hot button issues including Taiwan and the South and East China Seas, China is pushing to narrow the gap with the U.S. Navy.Inspecting navy headquarters, Xi said the navy should "aim for the top ranks in the world", the Defence Ministry said in a statement about his visit."Building a strong and modern navy is an important mark of a top ranking global military," the ministry paraphrased Xi as saying.