In an interview on CNBC, He said that Cyprus demonstrates, “an old truth, you can’t trust bankers to govern themselves. A banker who’s allowed to borrow money at X and loan it out at X plus Y will just go crazy and do too much of it, if the civilization doesn’t have rules that prevent it.” Warren Buffett’s right-hand man added, “What happened in Cyprus was very similar to what happened in Iceland, it was stark raving mad in both cases. And the bankers, they’d be doing even more if the thing hadn’t blown up. I do not think you can trust bankers to control themselves. They’re like heroin addicts.” [SFG]
Classically, the “Background of the Merger” section of a merger proxy is where you get the fun details of how the deal came to be, from which you can perhaps extract a sense of whether or not the deal is a good one for shareholders. But it’s written by lawyers so sometimes their idea of “fun details” differs from yours and mine. Here is a critical moment a week before Heinz agreed to be bought by 3G and Berkshire Hathaway, from Heinz’s merger proxy:
On February 8, 2013, representatives of Davis Polk and Kirkland & Ellis had a conference call to continue negotiations concerning the merger agreement. During the call, Kirkland & Ellis noted that the Investors were willing to accede to Heinz’s request that Heinz be permitted to pay regular quarterly dividends prior to closing of the Merger. Kirkland & Ellis noted that, while Heinz had reserved comment on the remedies for a debt financing failure proposed by Kirkland & Ellis in the initial draft of the merger agreement, the Investors’ willingness to enter into a transaction was conditioned on Heinz’s remedies in those circumstances being limited to receipt of a reverse termination fee. Kirkland & Ellis noted, however, that the Investors would withdraw their initial proposal that Heinz would not be entitled to any remedies if the merger were not consummated due to a failure of the debt financing that resulted from a bankruptcy of those financing sources. In addition, Kirkland & Ellis stated that they expected that the Investors would be willing by their guarantees to guarantee liabilities of Parent and Merger Sub under the merger agreement (including liabilities for breach of the merger agreement) up to a cap on liability equal to the reverse termination fee if it became payable (as the Investors had previously proposed). Kirkland & Ellis also reiterated that the Investors were unwilling to agree to a “go-shop” provision but confirmed that they were willing to accept a customary “no-shop” provision with a fiduciary out, which would allow the Heinz Board, subject to certain conditions, to accept a superior offer made following the announcement of the merger agreement. Davis Polk replied with a slanderous description of Kirkland’s mother’s sexual proclivities. Davis Polk suggested that, in lieu of a “go-shop” provision, Heinz might consider a two-tiered termination fee, with a lower fee payable by Heinz if it terminated the merger agreement to enter into an alternative transaction within a limited period of time post-signing. Kirkland & Ellis responded that, while the Investors might have some flexibility on the size of the termination fee, the Investors would not accept a two-tiered fee. Finally, Kirkland & Ellis noted that the standard for efforts to obtain antitrust approvals proposed in the most recent draft of the merger agreement was too onerous in light of the circumstances, but that the Investors would agree not to acquire other food manufacturers during the period prior to closing of the merger if doing so would interfere with obtaining antitrust approvals.
On March 30, 2011, Warren Buffett penned an open letter expressing support for his former lieutenant, David Sokol, whose trading activities had been called into question. “Neither Dave nor I feel his Lubrizol purchases were in any way unlawful,” Buffett wrote. Then, a month later, he told shareholders and reporters gathered at the BKR annual meeting in Omaha that, actually, Sokol was a degenerate bum; a piece of garbage that needed to be taken out, lest it stink up the place. (Actual words: “inexcusable,” “inexplicable,” in violation of “the company’s insider-trading rules and code of ethics.” Buffett added that Berkshire “had turned over some very damning evidence” re: Sokol to the Securities and Exchange Commission, to boot.)
Though Sokol did not publicly respond to the comments at the time, they presumably stung quite a bit, since having your unassailable ex-boss basically call you a lowlife does not do wonders for the reputation. Now, a year later, after being informed that the SEC would not be taking action against him, is he in a Zen place about life in general and Buffett’s words specifically? Are the two men cool? Could Sokol see them being friends again one day? At the very least, is he ready to laugh about them? Yes, yes he is. Read more »
SEC: It’s Not Like Warren Buffett’s Right-Hand Man, Who Was In Charge Of Finding Companies To Acquire, Had Any Unusual Insight Into What Companies Warren Buffett Might AcquireBy Matt Levine
The SEC probably came to the right decision in not taking any action against David Sokol but he’s still a delightful insider trading puzzle. Sokol, you’ll recall, is a former Berkshire Hathaway executive and Warren Buffett heir presumptive who was fired because he bought $10mm of Lubrizol stock, then pitched the company to Buffett without telling him that he (Sokol) had just bought a bunch of the stock,1 and then made $3mm when Buffett ended up buying all of Lubrizol at a premium. Here are, to a first not-legal-advice approximation, some things that are probably true:
- If Buffett had (1) decided to buy Lubrizol and (2) bought $10mm of Lubrizol stock for Berkshire’s trading account,2 and then (3) Berkshire approached Lubrizol and negotiated a deal: not insider trading!
- If Sokol had (1) convinced Buffett to buy Lubrizol and (2) bought $10mm of Lubrizol stock for his personal account, and then (3) Berkshire approached Lubrizol and negotiated a deal: insider trading!
The difference is not the insideriness – Buffett/Berkshire are more insidery, or have more material nonpublic information, than Sokol – but rather the misappropriation of that material nonpublic information. If Berkshire trades on Berkshire’s plans, that’s sort of an epistemological necessity. If Sokol trades on Berkshire’s plans, when he has some duty not to – if, for instance, Berkshire has policies requiring him to keep its plans confidential – then that’s insider trading.
But instead, it appears that the order of operations was (1) Sokol bought the stock, (2) Sokol convinced Buffett to buy Lubrizol, and (3) Berkshire approached Lubrizol and negotiated a deal. Sokol wasn’t trading on Berkshire’s plans: he was trading on his plans to convince Berkshire to buy Lubrizol (and, probably, to convince Lubrizol to be bought).3
I’ve always been fond of Warren Buffett’s schtick of being an adorable Cherry-Coke-drinking grandfather whose fuzzy sweaters hide some sharp elbows, talking up old-timey value investing while making his money on distressed sweetheart deals, and railing against derivatives while doing lots of shady ones. So I’m pleased that today he basically announced “we bought back a bunch of shares from one deceased buddy of mine, against our previously announced guidelines for how we’d buy stock, which we just amended to make this deal happen.” That seems shady!
Felix Salmon covers the shadiness here but also says this:
Buybacks are considered a good thing, on the stock market, for three reasons. Firstly, they reduce the number of shares outstanding, which means that the value of the remaining shares goes up: the company is worth the same amount, so the value per share is higher. Secondly, they provide an extra bid in the market, which helps support and drive up the share price. And thirdly, they give shareholders the opportunity to sell their shares back to the company: if they want to sell where the company is buying, they have that option.
So I submit to you that there’s a fourth reason buybacks could be considered a good thing: some stocks are a good investment, and if yours is a good investment, maybe you should buy it, instead of, like, “hoarding cash” or doing dumb M&A deals or whatever.
This sounds like a nice theory but is almost always wrong; typically, if company is all “the best investment we can find is our stock and it will only go up from here,” their stock is about to crater. But Warren Buffett isn’t a typical corporate CEO, stock-picking-abilities-wise. He’s … y’know, he’s a guy whose whole thing is being good at picking stocks, plus the Coke/grandpa stuff. And so his theory about buybacks is not primarily about EPS accretion or providing a bid in the market: it’s about buying stock at below “intrinsic value,” whatever that is.
Also he’s a guy who’s good at getting good deals. So why’d he get a bad deal here? Read more »
Do you want to invest like Warren Buffett? Sure you do. You know who will tell you how? Strangely, some guys at AQR:*
[W]e create a portfolio that tracks Buffett’s market exposure and active stock-selection themes, leveraged to the same active risk as Berkshire. We find that this systematic Buffett-style portfolio performs comparably to Berkshire Hathaway.
They acknowledge that Robo-Buffett doesn’t incur transaction costs that flesh-Buffett does (because R.-B. is as of yet just a simulation) but, that aside, “comparably” is an understatement:
Whee! Go Robo-Buffett! Who, intriguingly, looks a lot like … AQR: Read more »
Guy Whose Entire Persona Is Built Around Loving Cherry Coke Can’t Even Pick Cherry Coke Out Of A LineupBy Bess Levin
Buffett said in the letter that he was looking for someone who was emotionally stable, could avoid serious risks, think independently and read human behavior. He also tried to reassure shareholders that he was in excellent health: “It’s amazing what Cherry Coke and hamburgers will do for a fellow.”– New York Times, March 9, 2007
“The Economic Club of Washington rolled out a special head table — and laid in a special soft drink supply — at the Marriott Wardman Park in the District last Tuesday for the club’s 25th anniversary, where it hosted billionaire investor Warren Buffett…Economic Club Executive Director Mary Brady said she was advised by Buffett’s assistant, Debbie Bosanek, to keep things moving and find a supply of Cherry Coke (Buffett loves it…The Marriott Wardman Park, which is a Pepsi venue, made a special exception).”– Washington Post, June 10, 2012
For six months, as the credit crisis deepened, billionaire investor Warren Buffett turned away a string of Wall Street firms that came hat in hand looking for help. On Tuesday, Mr. Buffett says, he was sitting with his feet on his desk in Omaha, drinking a Cherry Coke and munching on mixed nuts, when he got an unusually candid call from a Goldman Sachs investment banker. Tell us what kind of investment you’d consider making in Goldman, the banker urged him, and the firm would try to hammer out a deal.– Wall Street Journal, September 25, 2008
David Rolfe, chief investment officer of Wedgewood Partners, which owns Berkshire stock, said the cancer was a non-news event. “I’m more worried about him getting hit by the Cherry Coke truck,” Rolfe said, a reference to Buffett’s professed love of the Coca-Cola product.– Deal Journal, April 18, 2012
Whenever I lost track of Buffett, [Cherry] Coke often appeared to guide me–a carbonated version of the proverbial trail of crumbs. In London, our party went from airport to hotel in separate cars. When I arrived at the Berkeley Hotel, I did not have to wonder for long whether Buffett had preceded me. A bellhop approached with a shopping bag. ”Is this yours?” he asked. Inside were two six-packs of Cherry Coke. Two days later, I was in the crowded lobby of the Schlosshotel Kronberg near Frankfurt, following a white-gloved waiter bearing aloft a single bottle of Coca-Cola on a silver tray.– BusinessWeek, June 5, 1999
The above is but a mere sampling, a drop in the bucket, of articles printed over the years intended to show us how much Berkshire Hathaway CEO Warren Buffett loves Cherry Coke. That it is his exclusive soft drink of choice. That he spurns all others in its favor. That he bathes in it. That he sweats it. That if you cut him, he bleeds not blood, but Cherry Coke. That the mere suggestion of drinking something that is not Cherry Coke makes him sick. That the notion he wouldn’t be able to tell the difference between Cherry Coke- his lifeblood- and, say, Diet Dr. Pepper or Pepsi Wild Cherry, would be laughable. We have been told to take this, above all else in the universe, as indisputable fact. And we all did just that.
And then this happened: Read more »
…Although Warren Buffett hired the hedge fund manager who won the last two private lunches with him that are part of an annual auction, he doesn’t expect the event to become a recruiting tool for Berkshire Hathaway. Rather, Buffett says it’s miraculous that he found one of Berkshire’s two new investment managers through the lunch. He offered Ted Weschler a job after he’d paid nearly $5.3 million over two years to dine with Buffett. “We’re perfectly situated now in respect to money managers,” Buffett told the Associated Press. Besides Weschler, Buffett has also hired Todd Combs to eventually oversee the company’s investments when the 81-year-old Buffett is gone as part of Berkshire’s succession planning. [AP]
As some of you may have noticed over the years, Warren Buffett has carved out a pretty unique niche for himself in using analogies about whorehouses, porn shops, one-night stands, taking Viagra, fondling inanimate objects (or simply laying the ground work to do so) when discussing business. Regardless of the topic, no matter the setting, he’s prepared to go out of his way marry aberrant sex fetish with folksy business wisdom. So naturally, when asked by Andrew Ross Sorkin on Squawk Box this morning if a $22 billion acquisition by Berkshire Hathway that didn’t pan out earlier this year might happen at some point in the future, Buffett told the gang “It’s always possible. When a girl hangs up on me, I try again,” rather than “Sure,” or “Yeah, anything can happen,” or “Never say never, Andy.” At this point, the anchors could have moved on but Joe Kernen saw an opening for a little repartee and went for it, not realizing that he was dealing with a professional. Read more »