Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) 2014 notes from the shareholder meeting. We have much more coverage but here is just a TINY amount Berkshire’s $34B BNSF Railroad Investment Nearly Doubles In 4 Years, Warren Buffett, Berkshire Hathaway Meeting: Five Key Takeaways , Warren Buffett CNBC Interview: Coke, Activism, More [VIDEOS]
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Warren Buffett on Berkshire Hathaway:
- explained why Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) does not pay a div
- vote was 90:1 for no. Without WB, vote still 40:1
- among b shares, 45:1 voted no
CL: KO holdings. This spring, The Coca-Cola Company (NYSE:KO) tried to approve large option program for mgrs. Why did WB not say he was against the plan beforehand? Why did Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) abstain rather than vote against?
WB: The proposal made by a shareholder against the option program made incorrect calculations of dilution. WB did talk to Kent and said BRK would abstain. WB said he thought comp plan was excessive. WB thinks this was the most effective way of behaving for Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B), by making their views clear but also not going to war with KO.
CM: CM and WB spoke about course of action and agreed
Warren Buffett: The Coca-Cola Company (NYSE:KO)’s option plan is for 500mm shares over 4 years. At 40/share now. Let’s say at 60 when exercised. That is a $10bn transfer of value. The company gets a tax deduction for 10bn then. They receive 20bn for exercise of options and get get 3.5bn in tax deductions. If they bought in the stock with 23.5bn dollars, the net dilution is 108mm shares or about 2.5 pct overall. WB does not like any dilution
Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) has track record of buying successful companies and buying them alone. 3g is much more active. Could BRK use 3g to make Berkshire Hathaway’s subs more profitable without violating promises? Should BRK hire 3g people?
WB: Don’t think the 2 cultures blend very well but thinks 3g does a great job running businesses. BRK will see more opptys to partner with 3g and is likely to jump at those opptys. However, don’t think a blending would work well.
CM: BRK has never had a policy favoring overstaffing.
The President’s approval rating is 40pct. Steve Wynn says Obama is a wet blanket to the economy. WB has Obama’s ear. Can you conduct Obama to change course?
WB: I don’t agree with a number of things said. American business is very profitable today. Corporate taxes/GDP have come down since WW2.
CM: Will avoid this one
You’ve said many times that if mgmt can’t return better than the index, they are not doing their job. Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) just missed on its 5 year performance.
WB: In 2012 AR, we said we do BRK does worse in very strong market years. If 2013 was strong, our streak would end. BRK will underperform in very strong up years. Over any cycle, believe BRK will outperform the market.
CM: We should remember that WB’s standard is after tax and the index is before tax. This is a very tough standard that WB beat for a very long time.
In annual letter, you strongly signaled Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) is undervalued. What actions can BRK take to narrow price and intrinsic value. Would BRK ipo subs?
WB: No would not. Have said willing to pay 120pct of book value in buybacks. WB and CM would probably come up with estimates of Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B)’s IV within 5% of each other but would not be precisely the same.
CM: It’s ok if price a bit below IV. Not in the game of inflating price in order to buy other companies
WB: In 60s, managers played the game of inflating their stocks to buy other companies. This was part of why I wound down my partnership. It works even though not indefinitely. We find this behavior distasteful.
Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) is known for buying and holding companies for many years. What do you do to gain founders or owners in the past?
WB: We kept our word to them. We cannot promise they will never have layoffs. We can promise we will not sell their business unless they run unending losses or have significant labor problems. Won’t sell just because results are sometimes disappointing. If we keep our promise, the word should spread. We have kept our promise and have only had to get rid of a few businesses including the textile business. If this kind of behavior is important to a seller, this is a major advantage held by BRK.
CM: It has worked well and we are unlikely to stop
Your son Howard is on board of KO and he supported the pay package that you opposed. Howard will become non exec chairman after you are gone. How can he protect the BRK culture given he voted for the KO pay plan
WB: When I was a director, I often voted for comp plans I thought were too rich and also for acquisitions I didn’t love. I voted against a few. The nature of boards is they are partially business orgs and partly social orgs. People on boards use their business brains sometimes and their social brains sometimes. I was on boards for 55 years on 19 companies. Most comp committees are not questioned; not saying this is right, maybe they should. Independent directors are not truly independent. How would you feel about a job that you go to 4-6 times per year that is prestigious and pays 300k/year? That is not independence. Comp committees do not look for dobermans. The social dynamics are important in board actions. Howard has a dedication to the culture of Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B). His job is not to set the compensation. His job is to facilitate a change in CEO if the board believes it is right.
CM: Warren was totally voted down when he was on comp committee at Salomon. It is suspect