Warren Buffett’s Berkshire Hathaway Inc., the largest investor in DaVita HealthCare Partners Inc., agreed not to acquire more than 25 percent of the dialysis provider after raising the possibility of increasing its stake.
The so-called standstill agreement was disclosed yesterday in a regulatory filing by Denver-based DaVita. Berkshire approached the dialysis company about increasing the holding, Kim Rivera, DaVita’s chief legal officer, said yesterday on a conference call in response to a question about what prompted the deal.
Berkshire held almost 15 million DaVita shares, a stake of about 14 percent, according to data compiled by Bloomberg based on a March filing. Standstill agreements are typically arranged by companies seeking to prevent an unsolicited takeover. The Berkshire-DaVita accord may limit speculation about a buyout from inflating the stock price, said Michael A. Mazzeo, an associate professor of finance at Michigan State University.
“Berkshire’s just not known for making hostile takeovers,” he said in a phone interview. “They make friendly ones. And so, this might be a way of simply beginning that dialogue.”
Berkshire’s DaVita holding is valued at more than $1.7 billion based on the closing price of $117.56 yesterday. Berkshire’s initial holding was acquired at about $74 a share in 2011, according to data filed with insurance regulators. DaVita climbed 3.3 percent to $121.41 in extended trading yesterday after the agreement was disclosed.
The accord was signed by DaVita President Javier Rodriguez and Ted Weschler, the 51-year-old stock picker Buffett hired to help oversee investments. DaVita was among the largest holdings at Weschler’s hedge fund before he joined Omaha, Nebraska-based Berkshire.
The agreement applies when Berkshire’s stake is 15 percent or more. Buffett’s company will refrain from proposing “any business combination, merger, tender offer, exchange offer or similar transaction” without consent from DaVita, according to a document included in the filing.
“Berkshire recently approached us about the option of increasing their holdings,” Rivera said on the call, which was scheduled to discuss DaVita’s quarterly results. “We found them to be a supportive investor with a long-term view.”
The companies reached an agreement “that reflects the fact that they’re a passive investor and this is a friendly relationship,” Rivera said.
The agreement limits the voting power of any Berkshire shares beyond the 15 percent threshold if both Buffett and Weschler are no longer with the company, said Erik Gordon, a law and business professor at the University of Michigan in Ann Arbor. New Berkshire managers who may have different investment philosophies would be thwarted from making a hostile bid for DaVita, he said.
“The point of this agreement is, ‘Hey, if you’re going to take us over, it’s got to be a friendly, negotiated deal that you do with the board,’” Gordon said.
Buffett didn’t respond to a request for comment sent to an assistant. Skip Thurman, a spokesman for DaVita, declined to comment beyond what DaVita said in the filing and on the call.
Peter Grauer, chairman of Bloomberg LP, the parent company of Bloomberg News, has served on DaVita’s board of directors since 1994.