Shareholders await Buffett’s decision

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By The Associated Press | Saturday, May 6, 2006 12:26 AM CDT | () comments

THE ASSOCIATED PRESS - Investment guru Warren Buffet, photographed last year at a bridge tournament in his hometown of Omaha, Neb., will field investor questions at today’s shareholders meeting of Berkshire Hathaway Inc.

Berkshire Hathaway Inc.’s shareholders have worried about who might succeed Chief Executive Warren Buffett for years, but Friday’s multibillion-dollar acquisition might be enough to overshadow those worries at today’s annual meeting in Omaha, Neb.

Shareholders probably won’t urge Buffett to reveal whom the company board has chosen as his successor even though he mentioned that one had been chosen in his annual letter in March.

And who can blame them? Shareholders would like to see the 75-year-old billionaire continue because the company’s book value — assets minus liabilities — per share has grown from $19 to $59,377 under his leadership.

Buffett, who also is chairman of Berkshire, and Vice Chairman Charlie Munger will likely face questions about the stock’s disappointing performance in recent years and the risk of hurricanes to the company’s insurance and reinsurance companies, along with questions about the U.S. trade deficit and other topics. Buffett likes to call the weekend’s events “Woodstock for Capitalists.”

Berkshire announced Friday that it had found a good use for the $44.7 billion in cash it held at the end of the year. The company will pay $5 billion for an 80 percent stake in Iscar Metalworking Cos., which makes metal cutting tools. The company’s current owners, the Wertheimer family, will retain 20 percent ownership.

Berkshire already owns a diverse mix of more than 60 companies, including insurance, reinsurance, carpet, jewelry, furniture, restaurants and utility firms. And the company has major investments in such companies as H&R Block Inc., Anheuser-Busch Cos., Coca-Cola Co. and MidAmerican Energy Holdings.

Media reports this week speculating about companies Buffett might buy next were wrong, but Buffett’s moves are notoriously hard to predict because he often spots deals others don’t. That’s why the notion of replacing him causes concern.

“I think every shareholder has some kind of worries about it,” said Richard Holland, who invested with Buffett in the early 1960s. “Everybody knows that the company was built on the genius of Warren Buffett and Charlie Munger.”

But Holland said he’s confident that Berkshire will be in good hands after Buffett. And a change doesn’t appear imminent.

“As long as his physical health and mental health are there, I don’t think he wants to go,” said Andy Kilpatrick, a stockbroker who wrote “Of Permanent Value, the Story of Warren Buffett.”

“I don’t think he has any intention of it (retiring),” Kilpatrick said. “He’s just being cautious.”

Buffett has refused to say who would take over his executive job other than to say it would be one of three “reasonably young and fully capable” managers at Berkshire. But he has said that his son, Howard Buffett, will be the board’s next chairman.

Buffett and Munger, 82, have tended to let people in the crowd drive the day’s agenda during an almost six-hour question period. They often field inquiries about politics and other topics unrelated to the company as people try to learn the opinions of the world’s second-richest man. The actual business meeting typically takes less than 15 minutes, and the only action item on this year’s agenda is re-electing directors.

Most but not all of the people attending will be shareholders because each shareholder can request up to four tickets and the company also sells tickets to the meeting on eBay. Buffett’s assistant Debbie Bosanek said the company is predicting a record crowd of about 23,000 people.

The stock’s relatively flat performance over the past two years is likely to be on the minds of some in the crowd of more than 20,000. The stock topped $95,000 two years ago, but mostly it has fluctuated between $80,000 and $90,000.

Holland and Kilpatick said the price isn’t reflecting the added value of acquisitions Berkshire completed in that time period, including utility PacifiCorp, press-release distributor Business Wire, malpractice insurer Medical Protective Company, RV-maker Forest River, and payroll services company Applied Underwriters.

Shares of Berkshire that traded for $89 in January 1977 rose $710 to close at $88,710 in trading Friday on the New York Stock Exchange Friday afternoon.

Buffett might face questions about the indictments of three former executives of General Re, a reinsurance unit, and what has been done to prevent similar problems in the future. The former executives pleaded not guilty in February to federal fraud and conspiracy charges related to a sham reinsurance transaction that allowed AIG to falsely report some $500 million in reserves against losses.

The question session at the annual meeting offers investors a chance to learn from a couple of masters at the craft, and it gives Buffett and Munger an opportunity to prove they’re still capable.

“Warren likes to take opportunities to demonstrate that he’s still got all his marbles,” said Mark Hirschey, a University of Kansas professor who plans to bring a group of about 170 people to this year’s meeting.

Occasionally, Buffett will offer listeners a glimpse into his thinking by talking through a series of calculations as part of answering a question. Kilpatrick said it’s those answers that reveal the most.

“It’s reassuring and it’s also educational,” Kilpatrick said.

EARNINGS INCREASE 70%

Berkshire Hathaway Inc. reported a 70 percent jump in first-quarter earnings.

Berkshire’s net earnings were $2.3 billion, or $1,501 per share, for the three months ended March 31, compared with last year’s $1.4 billion, or $886 per share, according to Berkshire’s filing with the Securities and Exchange Commission released late Friday afternoon.

Warren Buffett built a 1956 partnership of four relatives and three close friends into a holding company with total assets of $198.3 billion at the end of 2005.

— The Associated Press