Warren Buffett, the billionaire who controls Berkshire Hathaway, has signalled he is prepared to address perceived undervaluation of his sprawling conglomerate.
Berkshire said yesterday it had spent $1.2 billion (€917 million) buying back 9,200 shares from the estate of an unnamed long-term shareholder, and changed its criteria to give Mr Buffet more latitude to repurchase stock.
The move comes as Mr Buffett (82) continues to search for his next acquisition for a group that already controls more than 70 businesses which sell everything from butterscotch to prefabricated homes.
Berkshire does not pay a dividend, so with a $48 billion cash pile at the end of September, the investor must find large companies to buy. He said this year that two potential $20 billion deals fell through and that he was “salivating” at the prospect of another big deal.
Mr Buffett can buy back Berkshire stock at his discretion, with two caveats: he must keep at least $20 billion of cash on Berkshire’s balance sheet and only buy stock at a defined premium to the group’s estimated book value, raised yesterday from 10 to 20 per cent.
However, he may struggle to buy back large amounts of stock. When Berkshire announced its first ever buyback last year, a swift share price reaction meant he was only able to purchase $18 million of stock, a teaspoonful of the group’s $222 billion market value. – Copyright The Financial Times Limited 2012
