Warren Buffett’s Berkshire Hathaway seems to finally be loosening the purse strings now that the legendary investor isn’t calling the shots.
Berkshire, now run by Greg Abel, has agreed to buy $10 billion of Alphabet stock in a private placement, Google’s parent company said on Monday.
Buffett’s conglomerate — which owns Geico, Dairy Queen, and Precision Castparts — is set to purchase $5 billion of Class A stock for about $352 a share, and $5 billion of Class C stock for around $348 a share.
Both classes of Alphabet shares closed above $370 a share on Monday, meaning Berkshire is buying in at a roughly 6% discount to the market price.
The agreement was disclosed one day after Berkshire revealed it had struck an $8.5 billion deal to acquire Taylor Morrison Home Corporation, a publicly traded homebuilder and community developer.
Berkshire’s planned Alphabet purchases build on its sizable investment in the search, advertising, and AI titan, which said on Monday it would raise a further $70 billion from other sources.
Berkshire bought nearly 18 million shares in the third quarter of last year, then more than tripled its holding to almost 58 million shares in the first three months of this year, giving it a roughly $17 billion stake as of March 31.
Assuming Berkshire hasn’t pared the position since then and that it follows through on its latest deal with Alphabet, it’s poised to own more than $32 billion in Big Tech stock, making it one of the largest holdings in Berkshire’s portfolio.
Putting cash to work
Buffett, who ended his six-decade run as Berkshire’s CEO at the end of last year but remains the company’s chairman, is a world-renowned bargain hunter.
But he struggled to find compelling ways to deploy Berkshire’s cash in recent years, thanks to a red-hot stock market, fierce competition for acquisitions, and Berkshire’s surging stock price making even buybacks look unattractive.
The upshot is that Berkshire’s hoard of cash, Treasury bills, and other liquid assets has almost tripled in size over the last three years. It has ballooned from about $130 billion at the end of 2022 to a record $380 billion at the end of March.
Berkshire has faced pressure to tap its war chest for years. But longtime shareholders such as fund manager Tom Russo have praised Buffett’s discipline and said the dry powder will be invaluable during the next crisis.
Abel, who took over as CEO on January 1, appeared to be following Buffett’s lead in his first three months on the job, after Berkshire revealed it was a net seller of stocks for a 14th consecutive quarter.
However, Berkshire bought around $16 billion worth of shares in the period, its biggest outlay in four years.
Those purchases were more than offset by a hefty $24 billion of disposals, but the sales may have been one-offs as Berkshire has been offloading Todd Combs’ positions following the investment manager’s departure to JPMorgan.
Abel also reinstated buybacks in March after Buffett refrained from any repurchases for the preceding six quarters.
The combination of material stock purchases, the resumption of buybacks, the Taylor Morrison acquisition, and the Alphabet stock deal won’t move the needle much at Berkshire, given its massive scale.
But the flurry of activity suggests Abel isn’t shy of putting Berkshire’s cash to work, and could signal a more aggressive deployment strategy going forward.
Read the full article here
