Burger King Beefs Up Berkshire Shares
More mana for Warren Buffett as an other multi-billion dollar cascade of cash toppled into the Berkshire Hathaway balance sheet this week and Berkshire Hathaway shares nudged the $US300,000 mark (yes $US300,000).
The shares hit a high of $US299,790 (the highest ever) on Tuesday, and ended up 1% at $US298, 630 - valuing Berkshire Hathaway at more than $US491 billion ($A650 billion). They fell to just over $US296,000 on Wednesday despite the solid rally by the broader market.
Berkshire shares are up more than 22% so far this year while the S&P 500 is up more than 17%. It looks as though Buffett and Berkshire are headed for another year of outperformance of the wider market, as they did in 2016.
Powering the shares this year has been the rise stake in Apple and the overall rise on Wall Street. This week it was the expectation that Berkshire will receive well over $US3 billion in cash from the repayment of an investment in the 2014 takeover of Tim Hortons in Canada by Burger King (which was a so-called US tax inversion deal that saw Burger King move to lower tax Canada).
Berkshire put up $US3 billion in preferred stock to help get the financing of the deal over the line and was being paid an interest rate of 9% a year - or $US270 million, which it received form 2015 and 2016 and part of this year.
In October Burger King owner, Restaurant Brands International said it would redeem the $US3 billion of preferred shares.
And in its third quarter filing Berkshire confirmed the redemption would happen by December 12 and would include a 9.9% premium payment of $US300 million.
The premium in the repayment of around $US3.3 billion plus the interest payments made a return of around 28% in the three years the financing was in place.
Now the cash goes will add to the $US109 billion cash pile Berkshire had on its books at the end of September (when it also had a share portfolio valued at $US157 billion.
Those two holdings have a value of $US266 billion (around $US270 billion when the Burger King cash is repaid). The value of all Berkshire’s many other businesses is therefore around $US225 billion, which is sounds cheap.
Included in those assets are the largest collection of insurance companies in the world )a big car insurer, reinsurer and general insurer in Geico, General Re, National Indemnity and more), as well as a large collection of power company assets, sporting goods, car dealerships, mobile homes, real estate agencies, one of America’s top 3 railroads, a huge manufacturing business at all levels, national food and grocery distribution operations and more (such as a chain or two of unwanted newspapers).
Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.
At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.