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- Manlobbi
Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A) ❤
No. of Recommendations: 9
I just bought a 1.5% stake in Occidental, at $61.08, along the following line of reasoning:
(i) I am bullish about the prospects for oil and gas;
(ii) OXY trades at 4 times last year's earnings; obviously, the market expects that current oil prices are not sustainable, but I think they might be;
(iii) Buffett obviously likes it;
but mostly
(iv) Buffett's stake has now risen to 22.2% of Occidental's 900m shares; if you include the 83.9m shares that Buffett can buy for $5b worth of warrants (at $59.86/share), that number would be 28.9%. Interestingly, Berkshire purchased BNSF after it had acquired a 22.6% stake, very close to Berkshire's current stake in Occidental, and much smaller, if one considers the warrants.
Buffett being a creature of habit, and having a fine sense of convention, for instance, how much of a stake can you buy before you are conventionally supposed to make an offer to buy the whole thing, I am guessing that there is a X% chance that that offer will be made in the next month or so. What is X? I don't know. My guess is that it is 30. If I am right, he is likely to offer a substantial premium; for BNSF, it was 31.5%. That would mean something like $61.08*131.5%= just over $80, or $56b for the OXY shares that Berkshire doesn't already own. He would likely sell the $29b Chevron stake as part of the funding, and another $27b in cash would take care of another 9 months' worth of Berkshire's operating cash flow.
If I'm wrong, it's something I'm happy to hold onto anyways; if I'm right, I get at 0.5% bump to my portfolio in a month or three.
Any other guesses about X, or thoughts about the details of an offer if it happens?
DTB
No. of Recommendations: 1
There's always a typo or two, but this sentence really got mangled:
Buffett being a creature of habit, and having a fine sense of convention, for instance, how much of a stake can you buy before you are conventionally supposed to make an offer to buy the whole thing, I am guessing that there is a X% chance that that offer will be made in the next month or so. What is X? I don't know. My guess is that it is 30.
Sorry about that. Ok, let me try again:
How much of a stake can you buy before you are supposed to make an offer to buy the whole thing? Buffett probably has as good a sense of the law and market conventions as anyone, along with a desire to buy as many shares as possible without the control premium. Given the fact that he made the BNSF takeover offer when he had acquired 22.6% of BNSF at market prices, now that we're up to a 22.1% position in Occidental, we may not be far off from an offer, if that is Buffett's intention.
We obviously don't know whether that's what he wants or not, but it's possible, with X% probability. What is X? I don't know, 30 would be my guess, but whatever it is, if it happens, it might well be in the next month or so.
No. of Recommendations: 0
Just speculating, but perhaps it could be useful to find out what % of the time historically (maybe weighted to the more recent past) Berkshire has gone on to make buy-out offers after reaching ownership of x% of shares on the open market, then compare that to where OXY ownership currently stands. It could reveal a "point of no return" if you will where it would be beneficial to jump onto the bandwagon when the odds, historically at least, of a buy out offer coming in the near future have substantially increased.
No. of Recommendations: 10
Just speculating, but perhaps it could be useful to find out what % of the time historically (maybe weighted to the more recent past) Berkshire has gone on to make buy-out offers after reaching ownership of x% of shares on the open market, then compare that to where OXY ownership currently stands.
Yes, exactly!
Perhaps there is something on the intertubes that summarizes Berkshire takeovers, and we could look at the most recent ones.
I'll start building, with public company acquisitions that come to mind:
1995: GEICO (Berkshire already owned about half, for many years I believe; so it sort of counts as a takeover, with 50% being the point of no return)
2009: BNSF (22.6% stake prior to offer; 31.5% premium; subsequent divestment of other rail stakes)
2013: Heinz (bought 50%, along with his Brazilian friends, after owning a smaller but significant stake: sort of counts as a takeover, I'd say)
2014: Duracell (this was just a branch of P&G, so I don't think it helps us)
2015: Precision Castparts (3% stake prior to the offer; 21% premium)
These are all potential 'numerator' cases, where the takeover happened. The 'denominators' would be these, plus the cases where Berkshire built up a significant stake, but DIDN'T end up making an offer. These would maybe include, off the top of my head:
American Express: bought 5% in the 60s, with the salad oil crisis, has been around 20% recently, probably doesn't count since I don't think Berkshire is allowed to take over a bank, or if it did, it would be regulated as a bank, which it doesn't want)
Coca-Cola: roughly 10%, no movement for years
USG: bought around 2000, got up to a 30% stake, never bought (opposed a German takeover in 2018 and lost; this is maybe a special case because any rational shareholder would have been afraid of the asbestos liabilities and wanted to keep it at arm's length; however, it IS the first example of a 20%+ stake that didn't get eventually bought)
Moody's (in 2007, Berkshire owned 19% of shares, but cut way back after the financial crisis, so this would be a case where he stopped before 20% and never pulled the trigger)
P&G (I don't think Berkshire ever owned more than about 3-4%)
USG Corp: Berkshire once had a big stake, 17% in 2007, but never bought. Making that 20% line look important.
Other banks: Bank of America, Bank of NY Mellon, US Bancorp, others maybe
Perhaps others could add to this list.
DTB
No. of Recommendations: 1
DaVita (DVA) - seems they own 36m shares out of 90m outstanding, or 40%, with no takeover
Ok, it happens. I guess one defense of the 20% threshold theory would be that DVA was perhaps never a Buffett purchase anyways. But it is at least a partial counterexample.
dtb
No. of Recommendations: 12
"I just bought a 1.5% stake in Occidental, at $61.08"
The first time I read this, I read it as you bought 1.5% of OXY, not invested 1.5% of your portfolio in OXY.
I was like damn, he is a baller....
No. of Recommendations: 0
2014: Duracell (this was just a branch of P&G, so I don't think it helps us)
If my memory serves correctly, BRK took Duracell in exchange for the shares of P&G owned at the time. A nice tax advantaged transaction. Could be something similar afoot with OXY. Time will tell.
Jeff
