Why Would Warren Buffett Invest in Sprint?

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Jul 192017

A Smith Brain Trust article published by the Robert H. Smith School of Business, University of Maryland,  “A Little Known Link Between Buffett and Sprint“,  addresses the issue as to why Warren Buffett might be interested in investing in Sprint:

SMITH BRAIN TRUST — Why might Warren Buffett be interested in Sprint? The question emerged from an annual gathering of CEOs in Sun Valley, Idaho, last weekend.

Sprint Corp. Chairman Masayoshi Son engaged two of America’s richest men, billionaire investor Warren Buffett and cable mogul John Malone, about investing in Son’s embattled wireless company. One possible outcome, according to The Wall Street Journal: Buffett’s Berkshire Hathaway would invest $10 billion.

Sprint is losing money and is saddled with more than $32 billion in debt, notes David Kass, clinical professor of finance at the University of Maryland’s Robert H. Smith School of Business. And in recent months, Sprint has held merger talks with rival T-Mobile, and has discussed a potential reseller agreement with cable providers Charter Communications and Comcast, as well as the possibility of selling a stake to them.

At first glance, it would not appear that telecommunications is within Buffett’s “circle of competence,” Kass says.

However, he adds, Buffett’s portfolio managers, Ted Weschler and Todd Combs have previously invested in the sector. “Weschler has been a longtime investor in John Malone’s companies and has a good understanding of the economics of the telecommunications industry, which includes Berkshire Hathaway’s current investments in Charter Communications and Liberty Global,” Kass says. Prior to joining Berkshire in 2012, Weschler held a large position in John Malone’s Liberty Media for many years in his hedge fund, Peninsula Capital.

Similarly, DirecTV was a John Malone investment that Weschler owned in his hedge fund, and subsequently both Weschler and Combs purchased shares for Berkshire. And Kass further reminds that DirectTV was later acquired by AT&T, resulting in large profit for Berkshire. Weschler and Combs subsequently sold the shares they received in wireless provider AT&T, as well as shares in Verizon.

So why would Berkshire be interested in wireless provider Sprint that is substantially less profitable than the other two leading wireless providers?

“One possibility is the opportunity to partner with John Malone, who has a history of maximizing shareholder value by spinning off assets held by his companies or issuing tracking stocks,” Kass says. “For example, Berkshire currently holds the tracking stock for John Malone’s Liberty SiriusXM Group, along with the underlying common stock of SiriusXM Holdings that it also invested in.”

“Mr. Malone is considered to be the most knowledgeable and successful investor in the telecommunications industry, Kass adds. “An investment in Sprint would be very appealing if Weschler and/or Combs recommend it.”

(Note: This blog post has been published by ValueWalk.)


 Posted by at 10:57 am

Will Kraft Heinz Bid Again for Unilever?

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Jul 132017

CNBC on July 10 reported that Susquehanna Financial Group analyst Pablo Zuanic stated that another bid by Kraft Heinz for Unilever “is now more than 75% likely”.  Furthermore, this second attempt by Kraft Heinz to acquire Unilever could come as early as August 19.

Unilever, which is co-headquartered in the U.K., is subject to the British law that says six months must pass before a company can try to make another offer for a firm it previously tried to acquire.  Kraft Heinz and Unilever jointly announced on February 19 that Kraft Heinz agreed to “amicably” withdraw its bid.  Therefore, Kraft Heinz could return with another bid as early as August 19.  Supporting this conjecture is the fact that Kraft Heinz has not made any attempt to buy another food company in the ensuing five months since February 19.

Unilever may have left its door open on a subsequent deal after Kraft Heinz withdrew its bid by stating “Unilever and Kraft Heinz hold each other in high regard” and that “Kraft Heinz has the utmost respect for the culture, strategy and leadership of Unilever”.

Since Unilever’s shares have risen about 30% since receiving Kraft Heinz’s bid, the original offer of $143 billion may now have to be increased to about $200 billion, a 25% premium over the current market price, for it to receive serious consideration.  Kraft Heinz is partly owned by 3G Capital Partners and Warren Buffett’s Berkshire Hathaway.

Unilever represents an attractive acquisition for Kraft Heinz because of its large size, geographical diversification, and its exposure to household and personal care products.  If Unilever is acquired, then a subsequent merger with Colgate-Palmolive would be a logical geographical and product extension in the household and personal care area.

(Note:  This blog post has been published by Investing.com and ValueWalk.)

 Posted by at 9:20 pm

Warren Buffett Contributes $3.2 Billion of Berkshire Hathaway Stock To Charities

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Jul 112017

Warren Buffett, on July 10, 2017, contributed $3.2 billion of Berkshire Hathaway stock to several charities.  According to Berkshire’s press release:

“Warren E. Buffett, Chairman of Berkshire Hathaway, today converted 12,500 of his Class A shares into 18,750,000 Class B shares. Of these Class B shares, 18,628,189 have been donated to five foundations: Bill & Melinda Gates Foundation, Susan Thompson Buffett Foundation, Sherwood Foundation, Howard G. Buffett Foundation and NoVo Foundation. These shares have a current value of $3.17 billion. This contribution is pursuant to the June 26, 2006 pledge letters posted on www.berkshirehathaway.com, subsequently modified upward for three of the foundations. Mr. Buffett has never sold any shares of Berkshire. With the current gift, however, more than 40% of his 2006 holdings have been given to the five foundations. Their value at the time of the gifts, including the 2017 gift, totals $27.54 billion. Mr. Buffett intends to have all of his Berkshire shares given to philanthropy through annual gifts that will be completed ten years after his estate is settled. In all cases, his A shares will be converted into B shares immediately prior to the gift.”

 Posted by at 7:47 am