Berkshire Bids $500 Million for Remaining Wesco Stock
Wesco CEO Charles Munger
Daniel Acker/Bloomberg
Charles Munger, chief executive officer of Wesco.
Charles Munger, chief executive officer of Wesco. Photographer: Daniel Acker/Bloomberg
Warren Buffett’s Berkshire Hathaway Inc. offered about $500 million in stock or cash to buy the 19.9 percent of Wesco Financial Corp. that it doesn’t already own. Wesco jumped 12 percent.
Berkshire proposed paying Wesco investors in Class B shares, cash or a combination of the two, the Omaha, Nebraska- based company said today in a filing. Berkshire valued Wesco at about book value, a measure of assets minus liabilities. The book value was $352.66 a share at the end of the second quarter, according to data compiled by Bloomberg.
The transaction would relieve Wesco Chief Executive Officer Charles Munger, 86, of the responsibilities of managing a public company and give Buffett, 79, the freedom to run the unit without interference from minority shareholders. Buffett, who oversees more than 70 subsidiaries as Berkshire’s CEO, is preparing the $190 billion company for an eventual change in leadership.
“It’s part of the transition plan,” said Michael Yoshikami, who oversees about $1 billion, including Berkshire shares, at YCMNet Advisors in Walnut Creek, California. “They’re trying to package the company as best they possibly can for an efficient transfer, so that anybody who comes in has one less part to worry about.”
Wesco surged $38.25 to $363 as of 4:15 p.m. in New York Stock Exchange composite trading. The company has advanced 5.8 percent this year. Berkshire’s Class B shares fell 43 cents to $76.37 today and are up 16 percent since Dec. 31.
The Right Price
Munger, Berkshire’s vice chairman and Buffett’s longtime business partner, told Wesco shareholders at the company’s annual meeting in May that a buyout by Berkshire would make sense at the right price. Stock market valuations weren’t appropriate for a deal, Munger said at the time. On May 5, the date of the meeting, Wesco ended at $369.25.
Munger helped Buffett evaluate the takeovers that in the last three decades turned Berkshire into a firm that sells energy and diamonds, hauls freight and underwrites earthquake insurance. The two men appear together on stage at Berkshire’s annual meetings and answer shareholder questions for four hours or more. Wesco owns businesses that store steel parts, rent furniture and sell insurance to banks and airlines.
Minority investors in Wesco own about 1.4 million shares, according to Bloomberg data. Berkshire said it plans to pay Wesco investors about book value, determined at a time “reasonably contemporaneous with the closing.” The boards of both companies and a majority of shareholders of the stock outstanding would have to approve the deal, Berkshire said.
Approvals
“Berkshire does not know whether any of these approvals will be obtained,” the company said. “If no transaction is agreed upon and approved, Wesco will continue to operate as it does presently as an 80.1 percent-owned subsidiary.”
Cascade Investment LLC, which manages money for the Bill & Melinda Gates Foundation, is the second-biggest Wesco shareholder after Berkshire with a 1.3 percent stake, according to Bloomberg data. Bill Gates, the Microsoft Corp. co-founder, is a friend of Buffett’s and a Berkshire director. Buffett is giving the Gates Foundation most of his fortune in Berkshire shares.
Jeffrey L. Jacobson, chief financial officer of Wesco, declined to comment. Carrie Kizer of Berkshire didn’t return a call or an e-mail.
To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net.
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