No. of Recommendations: 11
Yes, most likely. Greg and Warren knew they were overpaying for the last tranche of Pilot. They probably got a fair deal on the earlier buys.
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I'm not saying that Berkshire didn't overpay; I don't have an opinion on that. Mr Buffett was certainly scathing about the Pilot folks in the annual report, in his coded way. Maybe they succeeded in gaming the second payment after all.There were 3 tranches and the price of the second and third were to be based on parameters that seem to have been gamed by the selling parties, for the second tranche, if you believe (as I do) Berkshire's allegations.
Tranche 1: 2017, $2.8b for 38.6% of the business, valuing the company at $7.3b;
Tranche 2: January, 2023, $8.2b for another 41.4% of the business, valuing it at $19.8b;
Tranche 3: January, 2024, $2.6b for the last 20% of the business, valuing it at $13b.
In 2023, Berkshire claimed that the Haslams had been offering payments to Pilot executives to goose short-term profits and thus make the numbers more favourable to the sellers:
In its countersuit, Berkshire said it learned this month that Jimmy Haslam had as early as March devised a scheme to secretly promise "massive side payments" to high-level Pilot employees, in order to inflate short-term profit at the Knoxville, Tennessee-based business.
Berkshire said it believes the promised payments affected the employees' day-to-day decision-making, giving them incentives to make short-term decisions that would boost the Haslams' profit at the expense of Pilot's long-term value.
It also said Haslam then hid those payments, including from its National Indemnity Co unit, known as NICO.
"By secretly distorting the incentives of [Pilot] employees for personal gain, Haslam breached the fiduciary duties he owes to [Pilot] and NICO," Berkshire said.
"Haslam's outrageous and illegitimate scheme has harmed and threatens to further harm [Pilot] and, by extension, NICO and Berkshire," it added.https://www.reuters.com/legal/buffetts-berkshire-c...The case may have looked bad enough for the Haslams that they agreed to settle before the case came to trial, and as part of the settlement, I suspect they may have agreed to a lower price for the 3rd tranche in exchange for dropping his legal case against the Haslam family. So Berkshire may have gotten ripped off on the second tranche but got a reasonable price on the third. But we will probably never know for sure.
dtb
