Just when you thought Berkshire Hathaway (BRK-A) and Chairman Warren Buffett might slow down a bit, the investment conglomerate has continued to aggressively re-allocate capital.
Last week, Berkshire’s Mid-American subsidiary continued to sell its stake in Constellation Energy (CEG). In December, Constellation pulled out of its deal to be acquired by Mid-American, in favor of a deal with Electricite de France (EdF). As a result, Berkshire received 19 million shares in Constellation as well as $593 million in cash as a break-up fee. Throughout January and February, Berkshire has sold over 5 million shares in Constellation for proceeds of about $136 million, bringing the total cash in the bank from the cancellation of this deal to about $729 million.
This has likely helped buffer Berkshire’s coffers, especially as the conglomerate has made a bevy of deals as of late. I’ve already written about Berkshire’s participation in Harley Davidson’s (HOG) debt offering, its increased stake in Burlington Northern (BNI), and its capital injection into Swiss Re, and just last week Berkshire made a couple of additional moves.
Cement and aggregate company Vulcan Materials (VMC) announced in its earnings call last week that Berkshire was the sole investor in a $400 million debt offering that the company recently completed. Vulcan did not, however, indicate the terms of the deal. With the difficulty in finding and acquiring permits for new rock quarries, Vulcan is a company with selection of assets in locations that would be difficult for competitors to replicate. What’s more, it is likely to benefit from the government’s intention to increase infrastructure spending over time. Because of the nature of its business, though, Vulcan has a high amount of fixed costs--and therefore operating leverage--and as a result its earnings and cash flow can be somewhat volatile.
Late Friday, leading luxury brand Tiffany’s (TIF) announced that it had sold a $250 million slug of debt to Berkshire. This paper will pay a 10% annual coupon, and half of the debt will mature in 2017, while the other $125 million will come due in 2019. Like most luxury retailers, Tiffany has struggled as of late, as consumers have refrained from making big-ticket jewelry purchases. As such, this debt refinancing will bolster Tiffany’s balance sheet, and help it weather the current downturn in its business. For Berkshire, Tiffany is yet another outstanding brand that Buffett has had the opportunity to invest in, at what—to me at least--appear to be somewhat attractive terms.
Justin
The content contained in this blog represents the opinions of Mr. Fuller. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business. This content is intended solely for the entertainment of the reader, and the author.
