(Bloomberg Opinion) -- He’s making a list and checking it twice, but can’t find a takeover target that’s nice.
Warren
Buffett is the jolly man of the stock market. However, the chairman and
CEO of Berkshire Hathaway Inc. has also been a bit of a Scrooge this
year, as he continues to pass up acquisitions and instead hoard his
money. The billionaire has long been seeking a really big deal on which
to spend some of his company’s $128 billion of cash, except everything
is overpriced in his view. To make matters more frustrating, Berkshire’s
own shares are lagging behind the broader U.S. market by the most since
2009.
While
2019 wasn’t Buffett’s worst year, it was surely one of his dullest.
With Berkshire’s cash pile reaching new heights, Buffett has said
that just the thought of taking over another company — he’s acquired
nearly 200 during his career — causes his heart “to beat faster.”
Instead, this chart of Berkshire’s stock performance looks like it’s
almost flat-lining:
Berkshire
shares are on track to end the year up a modest 11%, trailing the
S&P 500 index by 20 percentage points. That’s even as the company
posted record operating profit in the latest quarter.
Buffett,
who turned 89 in August, is the fourth-richest person in the world, and
it’s hard for the fourth-richest person in the world to have too bad
of a year. But for one of the most elebrated investors and dealmakers
of all time, who also enjoys basking in the spotlight, the deal dry
spell isn’t much fun. Without any new acquisitions to rave about, even
Buffett’s highly anticipated annual letters — the release of which
investors treat like tickets dropping for a Beyonce concert — lately
have been shorter than usual and have lacked his characteristic bawdy
metaphors. (That’s not to say a retreat from the dirty-grandpa humor
isn’t welcomed by this writer.)
Berkshire’s
last large takeover — the kind he dubs “elephants” — was Precision
Castparts, an aerospace-parts supplier, for $37 billion; it was
completed nearly four years ago. This year, Berkshire merely provided
$10 billion of high-interest financing to help another company,
Occidental Petroleum Corp., make an acquisition; that barely put a dent
in Berkshire’s cash. It was then outbid in November for software
distributor Tech Data Corp. in what would have been a $5 billion
deal.(1) Berkshire had considered selling debt in Europe, which might
have been a precursor to a significant acquisition overseas, but that
never panned out. At the end of the day, the company’s splashiest
investment of the year was an $861 million stake in Amazon.com Inc. The
closest thing Buffett found to an elephant might just be this stuffed
animal, an item sold at RH, a small home-furnishings retailer in which
Berkshire recently bought a stake.
Though
it was a boring year, 2019 marks the end of what was perhaps
Berkshire’s most transformative decade. It became the owner of one of
America’s most expansive railroad systems, BNSF, while recognizable
brands including Duracell and Kraft Heinz (for better or worse) also
joined the Berkshire family. At the start of the decade, consumer stocks
such as Coca-Cola Co. and Procter & Gamble Co. accounted for the
biggest share of Berkshire’s stock-market holdings. Now, Apple Inc. and
some banks and credit-card companies together comprise almost
three-quarters of its portfolio. Buffett also took meaningful
steps toward succession planning by promoting Greg Abel and Ajit Jain to
oversee all Berkshire’s operations and thus raising their public
profiles.
Buffett
and Berkshire Vice Chairman Charlie Munger — who turns 96 on New Year’s
Day — were asked during the last shareholder meeting in May whether
their successors will have to transition the company from an
acquisition-and-investment vehicle into an entity focused instead on
returning capital through stock buybacks and dividends. “That’s
certainly a possibility,” maybe even during his time, Buffett said. “But
we will have to see how that works out over many years, because certain
years huge opportunities present themselves and other years are totally
dry holes.” Berkshire spent about $2.8 billion repurchasing class A and
B shares in the first nine months of 2019, up from $0 in 2017.
U.S.
stocks haven’t been getting any cheaper for Buffett. That said, some
see his hoarding of cash partly as an insurance policy in case his
health deteriorates, so that there’s added financial flexibility for the
next CEO. But knowing Buffett, he’ll want to go out with a bang.
Finding one last elephant should be his New Year’s resolution.
(1)
Buffett was also close to doing a “very large” transaction around this
time last year, but it fell apart, as did attempted deals involving
Unilever Plc and Oncor Electric Delivery Co. in 2017.
To contact the author of this story: Tara Lachapelle at tlachapelle@bloomberg.net
To contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.net
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Tara
Lachapelle is a Bloomberg Opinion columnist covering the business of
entertainment and telecommunications, as well as broader deals. She
previously wrote an M&A column for Bloomberg News.
