Warren Buffett's Recent Investments
[Article updated Oct 2 2008, to include GE investment]
[Article updated Oct 1 2008, to include BYD investment]
September 18 2008:
– MidAmerican, a Berkshire subsidiary agreed to acquire Constellation Energy Group for $4.7 Billion cash. In the tentative deal, Constellation would get $1 Billion cash, while MidAmerican gets 8% preferred equity. MidAmerican said it would pay $26.50 a share for Constellation, a slight premium over the stock’s closing price the day prior to the news. The deal will require shareholder and regulatory approval, and is expected to close within nine months.
– By acquiring Constellation, MidAmerican adds 9,000 megawatts of power generation (three nuclear plants, and Baltimore Gas and Electric utility company).
September 22 2008:
– International Metalworking Companies (IMC), a another subsidary of Berkshire made a deal to buy Japanese machine tool maker Tungaloy Corp. Tungaloy will sell 19.2% of its shares to IMC, while Nomura Principal (a unit of the brokerage Nomura Holdings) would sell its 71.2% stake to IMC. The sale price was not disclosed, but is likely to total $1 Billion.
– Tungaloy was split from electronics giant Toshiba Corp in 2004. Nomura purchased a 94% share in the company for 35.75 Billion Yen at the time, through a management buyout.
– Tungaloy had also said that it would buy the same percentage of its own shares from OSG Corp, whom they have a capital and business alliance with.
September 24 2008:
– Berkshire Hathaway will buy up to 9% of Goldman Sachs, representing a $5 Billion stake in the company. Goldman also announced plans to sell $2.5 Billion in common stock. Berkshire will buy $5 billion of Goldman perpetual preferred stock which carries a 10 percent dividend. It also will receive warrants to buy $5 Billion of common stock, or 43.5 Million shares, at $115 per share, within five years. The class of preferred shares are created just for the Berkshire deal. This means that Berkshire will be collecting 10% interest, with the option to convert the securities to common shares if Goldman recovers. If Goldman does not recover, Berkshire would not convert to common shares, and hold decreased risks as it would still have the preferred shares.
– In addition, according to a Reuters report, Buffet may also be interested in parts of American International Group (AIG). AIG is a huge insurance & financial services company that was rescued with an $85 Billion bailout from the Fed.
September 30 2008:
– MidAmerican will invest $230 million in Chinese battery company BYD, representing a 9.9% stake in BYD. BYD was founded in 1995 as a manufacturer of rechargeable lithium-ion & nickel batteries. It has expanded into producing cellphone parts, and alternative-fuel (electric) cars. MidAmerican sees large potential in BYD’s development of low-cost battery technology for electric cars, storage facilities for renewable sources of energy (solar/wind). MidAmerican has also stated it will help BYD in marketing its electric vehicles to the U.S. and European markets. BYD, has been developing into a sizable Chinese domestic auto maker and plans to unveil its first electric car to Chinese consumers in June 2009, with plans for US releases in 2011.
October 1 2008:
– Berkshire Hathaway will buy up to $3 Billion of GE preferred shares, yielding a 10% dividend. It also will receive warrants to buy another $3 Billion of GE common shares at $22.25 per share. The class of preferred shares were created just for the Berkshire deal, similar in style to the Goldman Sachs deal. GE also plans to sell $15 Billion in common stock. This again is another classic Buffet deal, such as the one with investment bank Salomon Brothers in 1987.
– Prior to the market downturn in 2007 Berkshire Hathaway has had the largest cash hoard it has ever had in company history, $44.33 Billion. Buffet told shareholders that with a market downturn, there would definitely be more opportunities for Berkshire to put the cash to use and generate returns. By the end of June 2008 the Berkshire’s cash holdings decreased to $31.16 Billion. There is no doubt Buffet and other super investors will be putting more of their cash to work looking for investment opportunities in the months to come, as an economic recover will surely take time.
– Today, analysts are calling Buffet’s investment in Goldman Sachs as a vote of optimism & confidence, and that Buffet believes the US economy will recover. However, that is really nothing new. If people really listened to Buffet instead of analysts, they would have known it much earlier, and purchased quality stocks at cheap prices. Since the start of the market downturn, Buffet has been telling the public (in numerous interviews), that he is optimistic about the US economy in the long term and that it will eventually recover. However, he also mentioned that in the short term, the US will be facing challenging times, and the market will face much turmoil. History has a funny way of repeating itself. Market crashes are always followed by market recoveries. In each crash, Buffet and other investors purchase quality investments, while speculators sell not knowing what to do. Then they patiently wait, until the market recovers to reap huge rewards. We can learn a lot, if we choose to.
– Let me know if you enjoyed this article, or if there is a question or topic you would like my to discuss in a future article. Feel free to comment!
Thanks & Happy Investing!
The Investment Blogger