Warren Buffett weighed in on the rising popularity of activist investors in a recent interview on CNBC’s Squawk Box, saying that selling a company may be good for short term performance but that he’d rather just own good companies.
‘I don’t think I’d split it up’: Buffett
“Most stocks, most of the time, not all of the time, sell at a discount from what you could sell the company for that day,” said Buffett. “I’ve seen cases where really good companies have sold for a third or quarter what they were worth. The answer isn’t to sell the company, the answer is to keep running the company well.”
Yost Partners was up 0.8% for the first quarter, while the Yost Focused Long Funds lost 5% net. The firm's benchmark, the MSCI World Index, declined by 5.2%. The funds' returns outperformed their benchmark due to their tilt toward value, high exposures to energy and financials and a bias toward quality. In his first-quarter letter Read More
Buffett, CEO and chairman of Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B), is well known for long-term value investments, so his reaction to short-term activist investing shouldn’t be surprising. Of course many activist investors would argue that the companies they are dealing with aren’t being run well and that the changes they recommend are meant to fix managerial problems.
When asked to comment specifically on Trian Fund Management’s argument that PepsiCo, Inc. (NYSE:PEP) should be split into a separate companies, one that keeps the food and snacks portfolio and another with the beverages portfolio, Buffett said, “I don’t think I’d split it up… I just think that Frito-Lay is an extremely good business, better than the soft drink business, but I think the soft drink business is a good business, too, and I don’t see any point to split them up.”
Trian wants a spin-off, not a sale
Trian, which owns about $1.2 billion in PepsiCo common stock first met with the company’s board to present the case outlined in its white paper and then sent a letter to shareholders when the board of PepsiCo turned them down. Trian argues that by splitting the company, two different management teams will be able to focus on each portfolio and innovate more effectively, after what Trian describes as a disappointing 2013 and weak 2014 guidance.
While many activist proposals focus on selling underperforming divisions to free up cash (usually for some combination of M&A activity and dividend payments), Trian wants to keep its stake in both sides of the business.
“It is important to understand that we never advocated a sale of the business. Rather, we recommended a spin-off so that shareholders can participate in future upside,” Trian wrote in its letter to the PepsiCo, Inc. (NYSE:PEP) board, countering arguments that the spin-off would lose out on future value creation.