Berkshire Hathaway Inc said it will launch a share buyback program, an unprecedented move from Buffett that comes months of investor complaints that the stock is undervalued, Bloomberg reported.
Some long-time investors said, Berkshire shares were lately at their cheapest in a generation, and even analysts who were cautious on the stock acknowledged it was priced attractively. Yet Buffett has held his ground, preferring deals that increase margins and provide a return.
In his letter to shareholders last February, Buffett bragged that not a dime of cash has left Berkshire for dividends on share repurchases during the past 40 years. But Berkshire said on Monday it was not willing to pay up to 10% more than book value for its stock.
Berkshire said in a statement, “In the opinion of our board and management, the underlying businesses of Berkshire are worth considerably more than this amount, though any such estimate is necessarily imprecise.”
Long-time Buffett investor said, Oracle of Omaha, was effectively buying two things cheaply- Berkshire as an operating firm for a broad set of industrial and consumer businesses , and Berkshire as a portfolio of financial and other stocks that have been heavily sold of late.
Berkshire Hathaway Class A shares rose 5.7% to $106,000 in midday trading, while the more actively traded Class B shares rose 6.3% to $70.56. Last week, both classes fell to their lowest point since early 2010.
The A shares are expensive because Berkshire has never split them, choosing instead to let them appreciate over time. The B shares, which hold less voting rights, were split to help finance the takeover of railroad Burlington Northern. The company said it will utilize cash on hand to fund the buybacks, but will not buy any shares if doing so take the company’s cash position below $20 billion.
Berkshire had $47.89 billion cash at June 30 but has spent at least $15 billion this quarter on acquisitions and investments, most notably the chemical firm Lubrizol and a preferred stake in Bank of America.
As of June 30, Berkshire’s book value was $98,716 per Class A share, which would suggest the company would be willing to pay up$108,588 per share in the buyback program.
Assuming Berkshire spent $10 billion buying back stock at the top of its stated range, it could end up repurchasing nearly 10% of its Class A shares.
One investor said the timing of Berkshire’s announcement said something about the recent sharp market falls. Michael Yoshikami, chief executive of investment manager YCMNET Advisors and a Berkshire holder said, “One might aruge that Buffett is making a statement about the overall market.Perhaps he thinks that the selling is more.”
Berkshire Hathaway is a diversified company of American business magnate Warren Edward Buffet having interests in life insurance, annuity sales and sale of jewelry.
The term share buyback is the reacquisition by a company of its own stock. In some countries, including the US and UK, a corporation can repurchase its own stock by distributing cash to current shareholders in exchange for a fraction of the company’s outstanding equity that is cash is exchanged for a reduction in the number of shares outstanding.
