Berkshire Hathaway 2009 Annual Meeting Audience Question # 37

Berkshire will not be spinning off any companies

Warren Buffett:


Becky Quick:

This is a question from Edward Donahue from Belmont, Massachusetts.

“In the spirit of raising partnership value in these times, has Warren given any thought to spinning off as separate companies?

“My thinking is that some of these companies would sell at higher multiples to book value that Berkshire currently does. Further, where appropriate, consolidate companies with similar industries with the wish to save on management costs, administration, and even potential selling costs.”

Warren Buffett:

Yeah, we will not be spinning off any companies. We had to… we were a bank holding company, believe it or not, at one time. We became one in 1969. Then we were given 10 years to dispose of our bank, which was in Rockford, Illinois, and we did have a, in effect, a spinoff of that.

But, we… if somebody comes around us and says, “Gee, you can… you’ve got a multiple of X, and you can have a multiple of 1 1/2 times X for this subsidiary, if you spin it off,” you know, we can’t wait to throw them out of the office. I mean, it just doesn’t interest us.

We are not looking for something that gives a, you know, a one-month jump or something like that in market value. If we’ve got a wonderful business, we want to continue it within Berkshire.

We’ve got this ability within Berkshire, which is a real asset, in terms of moving money around into various opportunities without tax consequences. I mean, they’re part of a consolidated return.

So if a See’s Candy is a wonderful business, which it is, but it generates a lot of capital that can’t be used effectively in that business, we can move it to some other business or buy other businesses with it.

And we have a real advantage in allocation of capital that a shareholder, basically, can’t do as tax efficiently as we can do it within the company.

Plus, when we buy businesses from people, we make them a promise. You know, they can read our economic principles in the back of the annual report. And they know that we’re buying for keeps.

You know, it is a marriage that’s going to last. And we’re not going to, because we can get a higher multiple or something for a temporary period of time, spin something off.

On top of it, that… there would be those other costs. But that’s not the determining factor. It’s the basic principle at Berkshire that we buy to keep. And people can trust us to keep our word on that.


Charlie Munger:

Yeah, the… so many of those spinoffs, because your market cap will be a little higher, Wall Street sells that stuff, so they can get fees.

It isn’t really doing that much for anybody, in the ordinary case.

I suppose the one exception that could happen, if the regulation was crazy enough, you know, you can imagine something that might cause Berkshire to go to two parts. But short of something like that, you’re looking at what you’re going to get.

Warren Buffett:

Yeah, if it was actually hurting some operation that… because regulation was focused in that, and that tied the hands of other companies in the Berkshire group, you know, we’d have to look at that.

But, as Charlie said, we have listened to presentation after presentation, over a lot of years, about… by investment bankers, you know, basically saying, you know, “If you just do this wonderful thing,” you know, all these… that the market will love you.

And… it… how much is conscious, and how much is subconscious, we’ll never know. But the one thing we do know is there’s always a fee that accompanies it.

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