Why Did Berkshire Hathaway Signifcantly Reduce its Stake in Exxon Mobil?

Warren Buffett

Berkshire Hathaway released its most recent 13-f yesterday afternoon. The information revealed unusual activity in Berkshire Hathaway’s portfolio during the fourth quarter. There was a lot of buying and selling of various positions.

Overall, Warren Buffett was a net seller in the fourth quarter of 2009. This is hardly surprising since Warren Buffett needed to raise cash to finance the acquisition of Burlington North Sante Fe. Warren Buffett reduced his stake in 11 out of the 41 stocks that are reported in Berkshire Hathaway’s 13-F. The companies Buffett reduced his stake in were CarMax, Conoco Phillips, Exxon Mobil, Gannett, Ingersoll Rand, Johnson & Johnson, Moody’s, Proctor & Gamble, Sun Trust Bank, United Health Group, and WellPoint. He added to several positions including one of his favorite companies Wells Fargo.

One of the strangest moves Warren Buffett made was his large decrease in Exxon Mobil. Warren Buffett only acquired a stake in the company during the 3rd quarter of 2009. It is very uncharacteristic of Warren Buffett to trade so quickly especially since there was no significant increase (in fact there was likely a decrease) in the stock price from the time Buffett made the purchase. The move was not insignificant; Warren Buffett reduced his stake in Exxon Mobil by approximately 70%.

The move is extra bizarre because Warren Buffett had initially only purchased a small stake in Exxon Mobil. In the third quarter of 2009 he purchased slightly under $100 million of the company. Warren Buffett never makes transactions of less than 100 million, leading many to suspect (myself included) that he would be buying more stock of the company over time.

I doubt he reduced his stake in Exxon Mobil to raise cash for the BNI deal. He only had a small stake in the company to begin with as I mentioned above. If he wanted to raise cash he would have sold a few more shares of large holdings like Johnson & Johnson and Wells Fargo.

This leads to only two possibilities in my mind: either Warren Buffett is becoming a trader or there was a material change in Exxon Mobil. I highly doubt it is the former and assume it to be the later.

I have thought of two possibilities of why Warren Buffett made this decision and they both have to do with the big news that hit the wires on December 14, 2009: Exxon Mobil was going to buy XTO energy in a multibillion dollar transaction.

The company announced that it would be purchasing XTO energy for $41 billion which includes $41 billion of existing XTO debt. A large part of the transaction would be financed through issuing stock to the shareholders of XTO. Exxon Mobil has agreed to issue 0.7098 of a share of common stock for each common share of XTO.

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