berkshire hathway ucvc

7/31/2019 Berkshire Hathway UCVC

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Berkshire Hathway INC.

Overview

Berkshire Hathway Inc. is an American conglomerate and has its headquarters in Omaha,Nebraska, Untied States. It has got a large number of subsidiary companies. In last 44 yearsthe average growth in shareholders equity is 20.3%. From 2000 -2010 the company produceda total return of 76%.

The company is very well known for the control by Warren Buffet, who is the companychairman and CEO. Earlier Mr Buffet used to focus on long term investments in publicquoted stocks, but now he has started buying whole companies. Berkshire as a conglomerateholds a number of businesses including confectionery, retail, railroad, home furnishings, andencyclopaedias, manufacturers of vacuum cleaners, jewellery sales; newspaper publishing;

manufacture and distribution of uniforms; as well as several regional electric and gas utilities .

History

The company started with a textile plant established byOliver Chase in 1839 as the Valley Falls Company.Chase founded his textile mill in 1806. In 1929 theValley Falls Company merged with the BerkshireCotton Manufacturing Company established in 1889.The combined company was known as Berkshire FineSpinning Associates. In 1955 Berkshire Fine SpinningAssociates merged with Hathway ManufacturingCompany. In 1962 Warren Buffet started buying shares in Berkshire Hathway. EventuallyBuffet acknowledged that the textile business was going down and it will not improve.Stanton made a verbal tender offer of $11 1 2 per share for the company to buy back Buffett'sshares. Buffett agreed to the deal. A few weeks later, Warren Buffett received the tender

offer in writing, but the tender offer was for only $11 3 8. Buffett later admitted that this lower,undercutting offer made him angry. Instead of selling at the slightly lower price, Buffettdecided to buy more of the stock to take control of the company and fire Stanton. In 2010,Buffett claimed that purchasing Berkshire Hathaway was the biggest investment mistake hehad ever made, and claimed that it had denied him compounded investment returns of about$200 billion over the previous 45 years. Buffett claimed that had he invested that moneydirectly in insurance businesses instead of buying out Berkshire Hathaway , those investmentswould have paid off several hundredfold.

Buffet in his early years was handling the main business of the company, but by 1967 he wasexpanding into the insurance industry and other businesses.


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Product Mix

Insurance Group: The organization takes part in both insurances and reinsurances regardingproperty and casualty risk. It also includes life, health and accident reinsurances. It maintainscapital strengths at an exceptionally high level. This is their competitive advantage. All of Berkshires major insurance subsidiaries are rated AAA by Standard & Poors Corporation .

GEICO: It was acquired by Berkshire in 1996. It is headquartered in Maryland. GovernmentEmployees Insurance Company, GEICO General Insurance Company, GEICO IndemnityCompany, and GEICO Casualty Company are its major subsidiaries. These companies areoperational in 50 states and offers primarily private passenger automobile insurance. Thesubsidiaries market their policies primarily through direct response methods, in whichapplications for insurance are submitted directly to the companies by telephone, through themail, or via the Internet.

GENERAL RE: It was acquired by Berkshire in 1998. Currently they conduct globalreinsurance business in 72 cities. North American property/casualty, international propertiesare the major segments it operates in. General Re is one of the largest reinsurers in the worldbased on net premiums written and capital.

BERKSHIRE HATHWAY ASSURANCE: Berkshire created a government bondinsurance company to insure municipal and state bonds. These type bonds are issued by localgovernments to finance public works projects such as schools, hospitals, roads, and sewersystems. Few companies are capable of competing in this area.

Utilities And Energy Group: Berkshire currently holds 83.7% (80.5% on a fullydiluted basis) of the MidAmerican Energy Holdings Company. At the time of purchase,Berkshire's voting interest was limited to 10% of the company's shares, but this restrictionended when the Public Utility Holding Company Act of 1935 was repealed in 2005. A majorsubsidiary of MidAmerican is CE Electric UK.

Clothing : Berkshires clothing businesses include manufacturers and distributors of avariety of clothing and footwear. Businesses engaged in the manufacture and distribution of
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clothing includes Union Underwear Corp. Fruit of theLoom, Garan, Fechheimer Brothers and Russell Corporation. Berkshires footwear businesses include H.H. Brown ShoeGroup, Acme Boots, Brooks Sports and Justin Brands. Berkshire

acquired Fruit of the Loom in 2002 for $835 million in cash. Fruitof the Loom, headquartered in Bowling Green, Kentucky, is avertically integrated manufacturer of basic clothing.

Building Products: With the acquisition of Acme BuildingBrands, Berkshire entered the building brand business. Acmemanufactures and distributes clay bricks, concrete block and cut limestone. It expanded itsbusiness when it acquired Benjamin Moore & Co. Moore formulates, manufactures and sells

primarily architectural coatings that are available principally in the United States and Canada.In 2001, Berkshire acquired three additional building products companies. In February, itpurchased Johns Manville which was established in 1858 and manufactures fibre glass woolinsulation products for homes and commercial buildings, as well as pipe, duct and equipmentinsulation products. In July, Berkshire acquired a 90% equity interest in MiTek Inc., whichmakes engineered connector products, engineering software and services, and manufacturingmachinery for the truss fabrication segment of the building components industry. Finally in2001, Berkshire acquired 87 % of Dalton, Georgia-based Shaw Industries, Inc. Shaw is theworlds largest carpet manufacturer based on both revenue and volume of production anddesigns and manufactures over 3,000 styles of tufted and woven carpet and laminate flooring

for residential and commercial use under approximately 30 brand and trade names and undercertain private labels. In 2002, Berkshire acquired the remaining 12.7 % of Shaw.

On August 7, 2003, Berkshire acquired Clayton Homes, Inc. Clayton, headquarterednear Knoxville, Tennessee, is a vertically integrated manufactured housing company. Atyear- end 2004, Clayton operated 32 manufacturing plants in 12 states. Claytons homes aremarketed in 48 states through a network of 1,540 retailers, 391 of which are company-ownedsales centres. On May 1, 2008, Mitek acquired Hohmann & Barnard a fabricator of anchorsand reinforcement systems for masonry and on October 3 of that year, Mitek acquired Blok-Lok, Ltd. of Toronto, Canada. On April 23, 2010, Mitek acquired the assets of Dur-O-Walfrom Dayton Superior Corporation.

Flight Services : Berkshire entered flight services sector by acquiring Flight SafetyInternational Inc. FSI primarily engages in business of providing high technology training tooperators of aircraft and ship. Berkshire also acquired NetJets Inc in 1998. In 2004 NetJetsprogram operated 15 types of aircrafts.

Retail: Berkshire operates in retail sector through Nebraska Furniture Mart, R.C.Willey

Home Furnishings, Star Furniture Company and Jordans Furnit ure Inc. In 2000 Berkshire
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purchased a chain of jewellery stores named Ben Bridge Jewellers followed by anotheracquisition named Helzbarg Diamonds.

In 2002, Berkshire acquired The Pampered Chef, Ltd., largest direct seller of kitchen tools inthe United States. Products are researched, designed and tested by The Pampered Chef, andmanufactured by third party suppliers. In acquired many other retail companies to explore inthis sector. Few being McLane Company, Albecca Inc, Maemon Holdings Inc and manymore.

Finance and Financial Products : Berkshire acquired and storage trailers, chassis,intermodal piggyback trailers and domestic containers.

Clayton's finance business, (loans to manufactured home owners), earned $206 million downfrom $526 million in 2007. Loan losses remain 3.6% up from 2.9%.

Berkshire Hathway is 5 th largest company of the world and holds the government bonds too.It is known for investing in the companies and acquiring them.

Financial Highlights

Berkshire Hathway holds the largest share in entire NASDAQ. Its share price is 127489 $. Ithas two kinds of shares. BRK-A and BRK-B. Category A are large cap shares and category Bare the small cap shares. One can convert category A shares into category B but not viceversa.

YEAR ASSETS PBT PAT TURNOVER2011 392647.00 15314.00 10746.00 143688.002010 372229.00 19051.00 13444.00 136185.002009 297119.00 11552.00 8014.00 112493.00

Note All figures mentioned above are in dollars.

The assets grew 25.72% in 2010 over 2009 and 5.2% in 2011 over 2010. So there is adiminishing growth in the assets. The PBT and PAT are following an up down pattern.

Company s turnover has increased insignificantly over the last two years. Company is goingat a smooth pace as of now
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Business Strategies

Warren Buffet is the largest investor of present era. He looks out for few things beforeinvesting in a company.

Methodology:

1. Has the company performed consistently well?

Basically what he looks for is ROE (return on equity). ROE tells about the rate atwhich shareholders are getting returns on their investments. He compares the ROE of different companies in the same sector and decides the company s performance.

2. Has the company avoided excess debt?Next big thing is debt. He observes that if the company s debt/equity ratio is low orhigh. A high ratio indicates more debt rather than equity is financing the business. Ahigh level of debt compared to equity can result in volatile earnings and large interestexpenses.

3. Are profit margins high? Are they increasing?The growth of a company does not depend on the profit margins but the growth of profit margins. He observes the data of previous 10 years and make out how well thecompany is performing. Keeping the data in mind he forecast the performance andinvests.

4. How long has the company been public?Mr Buffet focuses on companies which are at least 10 years old. He makes longevityas a tool of evaluation. Buffet judge a company on the basis of how well the companyhas added value to the shareholder. It is a very difficult task as based on pastperformance it is very difficult to guess the future of a company because of marketinstability and other variable factors.

5. How unique is company with respect to its approach and products?He knows that competitive advantage is the most important part of business world.Red ocean companies are always successful. So he traces the companies analyse theirstrategies and then invest.

Warren Buffet never gives dividends to its shareholders. He says if someone gives dividendsthat mean he is not sure of company growth and just to sustain the shareholders the companygives dividends.


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Recent Developments

Berkshire Hathaway Inc. has offered to buy Residential Capital LLC's mortgage unit,according to court papers filed Monday. Berkshire Hathaway Inc., Buffett's holdingcompany, is seeking to replace Nation star Mortgage Holdings owned by Fortress InvestmentGroup as the initial bidder for the bankrupt company's mortgage servicing unit. ResCap, themortgage unit of Ally Financial Inc. filed for bankruptcy in May with a plan to sell the unit toNation star for about $2.4 billion. Ally is the former in-house financing arm for GeneralMotors Co previously known as GMAC, and is not in bankruptcy. Berkshire also offered toserve as the stalking-horse bidder for a portfolio of loans that ResCap had planned to sell toAlly for approximately $1.4 billion. The stalking-horse, or initial bidder, sets the minimumprice, requiring other bidders at the auction to make higher counteroffers. In both cases,

Berkshire said it would offer more attractive terms in papers filed in federal bankruptcy courtin Manhattan. Berkshire also topped the proposed bid from Ally, offering $1.45 billion, or$50 million more. Before the bankruptcy filing, Berkshire made a last-minute offer to buyResCap assets for $1 in return for taking on its liabilities. Ally turned down the offer.Spokeswomen for both Ally and ResCap declined to comment on the Berkshire filing. Aspokesman for Fortress did not immediately return a request for comment after businesshours Monday.

Bibliography

1. Yahoo Finance2. Reuters.com3. Investopedia

4. Wikipedia

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