Archive for 'Berkshire Hathaway'

Warren Buffett, the man, the legend, is now 87 years old, has some history with cancer and is well aware that his best days are behind him. Rumors are flying that he’s been negotiating with God himself to continue running Berkshire from the grave-at least that’s the word on the street but I can’t verify that.  I suspect that the real plans involve mere mortals.

Warren Buffett is deservedly known as the greatest investor of all time. His track record with Berkshire Hathaway (BRK.B) (BRK.A) is remarkable. And yet, for investors, that track record isn’t necessarily enough to justify purchasing the stock. As everyone who has ever looked at a mutual fund knows, past performance is no guarantee of future results. As Buffett himself put it a bit more cheekily:

That may seem easy to do when one looks through an always-clean, rear-view mirror. Unfortunately, however, it’s the windshield through which investors must peer, and that glass is invariably fogged

Source: The Snowball, by Alice Schroeder

Why Would the Market Pay Extra for Buffett?

When trying to determine whether the value of the company (and thus the stock price) will drop after the death of Mr Buffett, it is worth inverting (as his partner Charlie Munger always says). The question then becomes, why is the market paying up for him to be running things.

Let’s think about the sources of value inside Berkshire Hathaway. There are insurance operations which earn money year in and year out on underwriting. He doesn’t do the underwriting but has created a great corporate culture. Probably Ajit Jain and Co. are adding the value here. The company has wholly owned subsidiaries in the utility, railroad, industrial, consumer product, financial, and media spaces. Given the size of the company, he isn’t actively running any of these businesses. There may be a bit of a halo effect, but I doubt it moves the needle. The final sources of value are investments and cash. Some of the investment have appreciated so much that it would be tough to sell them due to taxes owing (I’m looking at you Coca-Cola (NYSE:KO)), but new investments of cash are definitely the place where Buffett adds the most value.

More broadly, his value add is in capital allocation, which is basically the art of determining what to do with cash. He is objectively superior at that, which increases the likelihood of the company’s cash balances (and future cash income streams) being invested to earn a high return. That increases the present value of that cash to investors, and I believe is the primary source of any “Buffett premium.”

As someone who frequently writes on and invests in microcap net-nets, I am deeply aware that the market does not always value a dollar of cash at a dollar of market capitalisation. In Berkshire’s case, the huge cash pile is likely valued at a least a dollar for every dollar, because the market believes Warren Buffett will use the money effectively, as well as effectively allocate the significant cash flow that the business throws off each and every year.

Some of that Buffett premium is likely to disappear when Buffett passes away, and that day is inevitably getting closer. With Buffett now 87 and having had prostate cancer, he is certainly much closer to the end of his investing career than the beginning. Berkshire had the following to say about the matter in the Risks section of its most recent 10-k.

We are dependent on a few key people for our major investment and capital allocation decisions.

Major investment decisions and all major capital allocation decisions are made by Warren E. Buffett, Chairman of the Board of Directors and CEO, age 86, in consultation with Charles T. Munger, Vice Chairman of the Board of Directors, age 93. If for any reason the services of our key personnel, particularly Mr. Buffett, were to become unavailable, there could be a material adverse effect on our operations. However, Berkshire’s Board of Directors has identified certain current Berkshire subsidiary managers who, in their judgement, are capable of succeeding Mr. Buffett. Berkshire’s Board has agreed on a replacement for Mr. Buffett should a replacement be needed currently. The Board continually monitors this risk and could alter its current view regarding a replacement for Mr. Buffett in the future. We believe that the Board’s succession plan, together with the outstanding managers running our numerous and highly diversified operating units helps to mitigate this risk.

 

It has called out its succession plan as a mitigating factor to this risk, and when Buffett dies, I believe the successor(s) will be announced very shortly thereafter. However, there is one other big reason I am not very concerned about Mr Buffett’s eventual death, and that is I believe that capital allocation is actually getting easier at Berkshire Hathaway for a number of important reasons.

Reinvestment in Berkshire’s Owned Businesses

The simple fact is that he has, over the last 15 or so years, designed Berkshire to be able to reinvest a material portion of its excess capital internally. Capital-heavy acquisitions like Burlington Northern and its utility subsidiaries have a continual need for more capital and are a great way to reinvest the capital that comes from the other businesses and portfolio dividends without needing to make as many acquisitions.

The utility businesses especially are a great place to put new capital, because new capital investment in regulated utilities earns a regulated return. Thus, Buffett’s successor has a home from money that will earn a guaranteed rate of return that is generally around the cost of equity, or high single digits to low double digits. That will help take the pressure off.

The other thing that will help is that Berkshire has been acquiring companies that themselves grow by acquisition. The utility subsidiaries are the biggest example of this group, but there are a number of others. As a couple of examples, the Marmon group of companies regularly makes acquisitions, and Berkshire purchased Precision Castparts for a relatively full price, partially paying for its ability to grow its earnings using Berkshire’s capital. These (and many other) subsidiaries making tuck-in acquisitions will help Buffett’s successor effectively allocate capital by reducing the amount of money they need to allocate.

How Berkshire’s Buyback Plan Helps Allocate Capital

I believe the company’s buyback plan is also built to help Buffett’s successor allocate capital. If Berkshire’s stock falls on Buffett’s death and goes below the board’s buyback floor, the successor will have an easy way to accretively use Berkshire’s capital. There would be no reasonable way for anyone to criticise buying back Berkshire stock at a level previously endorsed by Warren Buffett himself.

 

The successor (and board) could also begin paying a dividend, although I think that is less likely. While a dividend has the attraction of being able to use an unlimited amount of capital in an intelligent way, it is also (at least indirectly) an admission by the successor of not being as savvy a capital allocator as Mr Buffett. Now, that is an admission that basically anyone should be happy to make, but for market confidence reasons, I can see why the board may not want to do so.

See more on Warren Buffett

 

 

 

U.S. General Public Gives Corporate America’s Most Visible Companies Higher Ratings Overall; Largest Number of Individual Companies Rank ‘Excellent’ in 12-year History of RQ Study

After falling to unforeseen lows amidst scandals, recalls and self-inflicted demonization economic crises, the American public’s positive perception of the reputation of corporate America is on the rise. Overall corporate reputation is experiencing rehabilitation as the American public gives high marks overall to corporate America, specific industries, and the largest number of individual companies in a dozen years. This, according to the findings of the 2011 Harris Interactive RQ Study, which measures the reputations of the 60 Most Visible Companies in the U.S.  This is the 12th year for the study, established in 1999.

To view the multimedia assets associated with this release, please click: http://multivu.prnewswire.com/mnr/harrisinteractive/44749/

Of the 20 notable changes in reputation among the 54 companies measured in both 2010 and 2011, 18 had significant positive increases, compared to only two declines. An astounding 16 companies received an RQ score over 80, which is considered to be an “Excellent” reputation, a sharp increase from the six companies so recognized in the 2010 survey.

Google ranked highest, supplanting Berkshire Hathaway, which falls to the 4th position. Johnson & Johnson ranked second again, followed by 3M Company at 3rd. Apple continues a steady rise begun in 2002, ranking 5th, as its corporate reputation catches up with its elite brand status.

Robert Fronk, Senior Vice President, Global Practice Lead, Reputation Management at Harris Interactive, stated, “The record 16 companies that received RQ scores reflective of an excellent reputation should all be lauded for their focus and commitment to reputation management. These companies recognize that it is this behavioral commitment that earns them reputation equity, not tactics designed to help them score well on lists like these.”

Google Vice President of Consumer Marketing Gary Briggs reacted to the news. “We have always believed that if we focus on making the best products for our users all else will follow. We’re honored to be recognized in this ranking and we will continue to put our users first.”

Tech Looms Large

The technology sector continues to be perceived most positively, with 75% giving the sector a positive rating, versus the number two sector, retail, which fares at 57% positive. Technology/Internet and Consumer Goods companies dominate the top rankings, with top 10 finishers 3M, Apple, and amazon.com benefitting from being associated with both industries.

“These top-scoring companies are seen as supporting the infrastructure of the lives of the American public,” says Robert Fronk, “and they get credit for simplifying, delighting, or enriching people’s lives.”

Facebook is a newcomer to the RQ Most Visible List, debuting in the middle of the pack (ranked 31st) with a RQ score of 74.12.

Auto Industry Shines

The auto industry had a significant increase in positive perceptions, jumping 15 points from 2010, the largest year-over-year gain by any industry in the study’s 12-year history.

All three domestic auto companies demonstrate positive momentum compared to 2010 and were among the ten most improved companies in the study. Building on its progress from last year, Ford improved its RQ score to 74.61, from 69.77. Ford is the second highest ranked car company, following Honda, which maintained its consistently high rating. Toyota ranks third among automakers but suffered a RQ decline of 9.96 points. GM and Chrysler achieved the 3rd and 4th highest gains in 2011.

Stabilizing but Still Struggling

Financial services firms and oil companies continue to populate the bottom of the rankings. AIG came in last position, with newcomer BP just edging above in the 59th position.  Goldman Sachs and Citigroup filled the remaining 2 slots in the bottom four. These four lowest rated companies were also rated lowest on the reputation characteristics of “being trusted to do the right thing” and “having high ethical standards”.

Following are some additional findings of interest:

  • The top 10 companies on this year’s list in order of ranking include: 1) Google; 2) Johnson & Johnson; 3) 3M Company; 4) Berkshire Hathaway; 5) Apple; 6) Intel Corporation; 7) Kraft Foods; 8) amazon.com; 9) General Mills; 10) The Walt Disney Company.  For a full list of the top 60 companies and other findings visit: www.harrisinteractive.com.
  • In addition to the top 10, 6 other companies received scores indicating they have an excellent reputation level. Those additional companies are: Proctor and Gamble Co., SC Johnson, UPS, Sony, The Coca-Cola Company, and Microsoft.
  • The bottom 10 companies on this year’s list in order of ranking include: 51.) Delta Airlines; 52) JP Morgan Chase; 53) Exxon Mobil; 54) General Motors; 55) Bank of America; 56) Chrysler; 57) Citigroup; 58) Goldman Sachs; 59) BP; 60) AIG.
  • There are six reputational dimensions that the RQ survey focuses on that influence reputation and consumer behavior. Below are the six dimensions along with the five corporations that ranked highest within each:
    • Social Responsibility – 1) Whole Foods Market; 2) Johnson & Johnson; 3) Google; 4) The Walt Disney Company; 5) Procter & Gamble Co.
    • Emotional Appeal – 1) Johnson & Johnson; 2) amazon.com; 3) UPS; 4) General Mills; 5) Kraft Foods
    • Financial Performance – 1) Google; 2) Berkshire Hathaway; 3) Apple; 4) Intel; 5) The Walt Disney Company
    • Products & Services – 1) Intel Corporation; 2) 3M Company; 3) Johnson & Johnson; 4) Google; 5) Procter & Gamble Co.
    • Vision & Leadership – 1) Berkshire Hathaway; 2) Google; 3) Apple; 4) Intel Corporation; 5) The Walt Disney Company
    • Workplace Environment – 1) Google; 2) Johnson & Johnson; 3) Apple; 4) Berkshire Hathaway; 5) 3M Company

Additional Information

To review selected research from the 2011 Harris Interactive RQ survey, please visit www.harrisinteractive.com.

Reputation Quotient Methodology

In its 12th consecutive year, The Annual RQ surveys more than 30,000 members of the American general public, utilizing its proprietary Harris Poll online panel. Respondents are first asked to identify the 60 most visible companies and then surveyed to rate these companies based on their reputation on 20 different attributes that comprise the RQ instrument.  The attributes are then grouped into six different reputation dimensions: Emotional Appeal, Products & Services, Social Responsibility, Vision & Leadership, Workplace Environment, and Financial Performance. In addition to the 20 attributes, the study includes a number of reputation-related questions that help provide a comprehensive understanding of public perceptions.  The 2011 RQ survey was conducted from December 30, 2010 to February 22, 2011.

About Harris Interactive

Harris Interactive is one of the world’s leading custom market research firms, leveraging research, technology, and business acumen to transform relevant insight into actionable foresight. Known widely for the Harris Poll and for pioneering innovative research methodologies, Harris offers expertise in a wide range of industries including healthcare, technology, public affairs, energy, telecommunications, financial services, insurance, media, retail, restaurant, and consumer package goods. Serving clients in over 215 countries and territories through our North American, European, and Asian offices and a network of independent market research firms, Harris specializes in delivering research solutions that help us – and our clients – stay ahead of what’s next. For more information, please visit www.harrisinteractive.com.

Press Contact:
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Harley-Davidson, Inc. (NYSE: HOG) Buys Back Notes for $297 Million

Harley-Davidson, Inc. (NYSE: HOG) Buys Back Notes for $297 Million-Image via Wikipedia

Harley-Davidson, Inc. (NYSE: HOG) has repurchased $297 million (face value) of senior unsecured notes scheduled to mature Feb. 1, 2014.

The Company repurchased the notes, held by Davis Selected Advisers, L.P., Dec. 10 at a price of $380.8 million. The transaction was priced based on U.S. Treasury rates and market credit spreads. If held to maturity, Harley-Davidson would have incurred total principal and interest payments of approximately $438 million on the notes between now and maturity. The Company used cash on hand for the repurchase. The repurchased notes will be cancelled by the Company.

In February 2009, during the depths of the economic recession and with the credit markets largely frozen, Harley-Davidson placed $300 million of senior unsecured notes each with Davis Selected Advisers and Berkshire Hathaway, Inc.

Harley-Davidson expects the repurchase to reduce fourth-quarter 2010 earnings by approximately $82.7 million on a pre-tax basis. The Company will not incur interest expense on the repurchased notes of approximately $45 million per year in 2011 through 2013 and $3.7 million in 2014.

Harley-Davidson, Inc. is the parent company for the group of companies doing business as Harley-Davidson Motor Company (HDMC), Harley-Davidson Financial Services (HDFS) and Buell Motorcycle Company (Buell).

Cannabis Science, Inc. (OTC Bulletin Board: CBIS) Offers New Dividend Payout

Cannabis Science, Inc. (OTC Bulletin Board: CBIS) Offers New Dividend Payout-Image by Daniel Kinpara via Flickr

Cannabis Science, Inc. (OTC Bulletin Board: CBIS), a pioneering US biotech company developing pharmaceutical cannabis products, is pleased to announce to its shareholders and the investment community that its Board of Directors have confirmed decisions and processes regarding the new class of common shares.  The new class will initially be created by a proposed 1 for 10 new share dividend payment for shareholders of record as of the proposed record date of November 30, 2010.

The proposed structuring and implementation of the new class of common shares requires various state, SEC and FINRA filings and approvals. The Company will announce official filings and provide guidance as to target effective dates as it progresses through the process.  The proposed structure is as follows: New Share Class

The Company’s proposed new common share structure will include Class A as the new Class, and Class B will be the current outstanding trading common shares.  Each Class of shares will have its own trading symbol and will contain the following features:

Class A Common Share Features (New class of common shares):

  • 10 votes per shares
  • Convertible into Common Class B shares at a ratio of 30 for 1
  • Ratio participation of 9/10th (90%) on declared dividends
  • Unique trading symbol

Class B Common Share Features (Current class of common shares):

  • 1 vote per share
  • Not convertible into other classes of shares
  • Ratio participation of 1/10th (10%) on declared dividends
  • Unique trading symbol

The price ratio conversion feature on the new Class A shares is to ensure the integrity of the share price ratio during market fluctuations between the new Class A and B common share classes, similar to that of Berkshire Hathaway’s Class A and B common shares.

Dividend

Cannabis Science proposes to issue a special dividend to all shareholders of the current common Class B shares on the proposed record date of November 30, 2010, which will consist of shares in the new common Class A shares at the ratio of 1:10 for each common Class B share held.

In addition, the Board proposes to give each shareholder of record a share purchase warrant consisting of an option to purchase one additional share of the new common Class A share for each special dividend share received. Each warrant will be exercisable into one of the new common Class A shares at a price of $0.50 per share for a period of three – (3) months, expiring 90-days after all the proposed changes officially take effect.

For example, a Cannabis Science shareholder who owns 1,000,000 of the current common shares on November 30, 2010 will receive a special dividend of 100,000 shares of common Class A shares in Cannabis Science and 100,000 share purchase warrants, to purchase 100,000 additional Class A shares at a purchase price of $0.50 per share for a period of three – (3) months, expiring 90-days after all the proposed changes officially take effect.

About Cannabis Science, Inc.

Cannabis Science, Inc. is at the forefront of pharmaceutical grade medical marijuana research and development. The Company works with world authorities on phytocannabinoid science targeting critical illnesses, and adheres to scientific methodologies to develop, produce and commercialize phytocannabinoid-based pharmaceutical products. In sum, we are dedicated to the creation of cannabis-based medicines, both with and without psychoactive properties, to treat disease and the symptoms of disease, as well as for general health maintenance.

Forward Looking Statements; This Press Release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934. A statement containing works such as “anticipate,” “seek,” intend,” “believe,” “plan,” “estimate,” “expect,” “project,” “plan,” or similar phrases may be deemed “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Some or all of the events or results anticipated by these forward-looking statements may not occur. Factors that could cause or contribute to such differences include the future U.S. and global economies, the impact of competition, and the Company’s reliance on existing regulations regarding the use and development of cannabis-based drugs. Cannabis Science, Inc. does not undertake any duty nor does it intend to update the results of these forward-looking statements.

Cannabis Science Inc. Cannabis Science Inc.
Dr. Robert J. Melamede Mark J. Friedman
President & CEO Investor Relations
info@cannabisscience.com info@cannabisscience.com
www.cannabisscience.com www.cannabisscience.com
1-888-889-0888 1-877-431-CBIS (2247)

SOURCE Cannabis Science, Inc.