Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) increased its holdings in USG Corporation (NYSE:USG) to 30.5% following the issuance of shares upon conversion of USG’s 10% Contingent Convertible Senior Notes due 2018. Berkshire now holds 43.43M shares in USG, a building materials company, according to its 13D/A filing. That is a very substantial jump considering Berkshire held about 17M shares previously.

Berkshire Hathaway

Berkshire Hathaway purchases convertible notes

USG Corporation (NYSE:USG) is the biggest manufacturer of gypsum-based building products such as gypsum wallboard in the United States. Warren Buffett has had an interest in the company since 2000 when he had purchased a 15% stake. In 2001 the company sank into bankruptcy due to asbestos related claims.  It emerged from bankruptcy in 2006 and as part of the restructuring, which involved setting up a trust fund for asbestos victims, a rights issue was made. Berkshire purchased almost seven million shares which were unsubscribed in the issue. In February 2009 Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) purchased the above convertible notes in a private placement by the company of $400 million aggregate principal amount.

Buffett long on building industry

Buffett is known to have a keen interest in the building industry, though one motive ascribed to this is slightly uncharitable, and, according to investment manager Richar Losch’s blog is “hurricane synergy”: “This is the idea that, if Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) can buy enough companies in the building materials, construction, and manufactured housing industries, then, when its insurance companies are paying insurance claims for catastrophic damage due to hurricanes and earthquakes, Berkshire Hathaway, as a company, will just be transferring money from one pocket to another.” This is just another view, and there is no way, of course, to tell if Berkshire really has such a strategy in place!

USG earnings and rating

USG Corporation (NYSE:USG)’s Q3 results were nothing to write home about. EPS of $0.21 and revenue of $925M missed consensus by $0.02 and $12.5M respectively. However, compared to the year ago quarter, the company increased sales by 12%, improved operating profit from $29M to $75M and moved to a net income of $23M versus a net loss of $29M.

“We had a very exciting quarter,” said James S. Metcalf, Chairman, President and CEO. “We were hard at work creating a world-leading plasterboard and ceilings joint venture in Asia, Australasia and the Middle East with Boral Limited, which we announced last week. We kept our focus on our core businesses and saw continued strong results in North America, and finally, we launched a dynamic new brand for USG.”

Last month, analysts at Credit Suisse assumed coverage on USG Corporation (NYSE:USG) with a Neutral rating and a price target of $27.