By Anupreeta Das
Warren Buffett mounted a spirited defense of Berkshire Hathaway
Inc.'s conglomerate structure, in his 50th letter to shareholders,
and made the case that the company is well-positioned to survive
without him and his partner Charlie Munger.
Reiterating many of his favorite themes, Mr. Buffett talked
about why Berkshire makes sense as it is currently structured--the
centrality of what he termed Berkshire's "special culture" to its
economic health and the value of being a conservative player. He
also said that diversification was key to Berkshire's
profitability.
Berkshire released the letter from its chairman on Saturday
morning, along with its fourth-quarter and annual earnings report.
Since 2015 marks the 50th year of Berkshire under the control of
Mr. Buffett, 84, and his right-hand man Mr. Munger, 91, the duo
each wrote sections reviewing Berkshire over the past five decades
and laying out their vision for the future. Mr. Munger typically
doesn't write letters to Berkshire shareholders.
In addition to his annual letter for 2014, Mr. Buffett added a
section called "Berkshire -- Past, Present and Future." He traced
Berkshire's formation and early history, including acquisitions
that didn't work out. He paid tribute to Mr. Munger, who has been
Mr. Buffett's partner throughout his adventures at Berkshire. "The
blueprint [Charlie] gave me was simple: Forget what you know about
buying fair businesses at wonderful prices; buy wonderful
businesses at fair prices."
In defending Berkshire's existing conglomerate structure, Mr.
Buffett said that if used judiciously, it "is an ideal structure
for maximizing long-term capital growth," while noting
conglomerates have a bad reputation with investors that is richly
deserved.
A conglomerate such as Berkshire can move huge sums of money
from one business to another without incurring taxes and doesn't
have what he called "historical biases" associated with being in
one industry. Also, Berkshire can buy pieces of attractive
companies because it is a holding company for both operating
businesses and stocks, an option not available to most company
managements, Mr. Buffett wrote.
He said Berkshire wouldn't spin off any businesses voluntarily
because it makes no sense. However, regulators might force the
company to do so, as in the past.
Mr. Buffett said Berkshire, with its clutch of diverse
businesses, would continue to look for acquisitions and has evolved
into an alternative for a family business deciding to sell.
While rival purchasers might try to wring out synergies, and
private-equity firms are likely to load the company up with debt
and sell it down the road, Berkshire provides a permanent home
where the company's people and culture will be retained, he said.
"Some sellers don't care about these matters. But, when sellers do,
Berkshire does not have a lot of competition."
In a final section, he wrote about the next 50 years. He
discouraged investors from buying Berkshire for the short term,
instead suggesting they hold the stock for at least five years for
a reasonable return. Berkshire, with its huge cash pile, would be
unlikely to face financial problems in the future. However, he said
long-term gains for the conglomerate "will not come close to those
achieved in the past 50 years. The numbers have become too
big."
Mr. Buffett also explored the likelihood of a dividend being
paid in the next 10 to 20 years, when Berkshire might reach a point
where its management won't be able to "intelligently reinvest" all
of the company's earnings. Berkshire to date hasn't paid a
dividend.
"All told, Berkshire is ideally positioned for life after
Charlie and I leave the scene," he wrote. "We have the right people
in place--the right directors, managers and prospective successors
to those managers. Our culture, furthermore, is embedded throughout
their ranks. Our system is also regenerative."
Write to Anupreeta Das at anupreeta.das@wsj.com
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