Buffett's $1 Billion Purchase That Got Buried in Record Quarter

Warren Buffett's Hits and Misses
  • Price tag for GE's tank cars highlights Berkshire's size
  • Analysts say scale makes it harder to evaluate company

Here’s how big Berkshire Hathaway Inc. has gotten: At the end of the third quarter, a subsidiary of one of its subsidiaries bought some 25,000 tank cars from General Electric Co. and didn’t bother disclosing the purchase price.

Turns out it paid about $1 billion.

Investors could be excused for missing that tidbit. It was tucked deep in Berkshire’s quarterly report released late Friday, outlining results at Warren Buffett’s sprawling conglomerate. That the price tag could be buried highlights a frequent complaint from the analysts trying to make sense of the company’s insurance units, electric utilities, manufacturers, retailers and railroad.

“For a company of this complexity and vastness, the level of disclosure -- while improved from a couple of years ago -- is certainly not what it should be,” Cathy Seifert, an equity analyst at Standard & Poor’s Capital IQ, said in a phone interview after results were announced.

‘So Big’

Buffett, 85, has long defended the amount of information that he gives to shareholders, saying that it’s what he’d want to know if roles were reversed. While the billionaire fields hours of questions from investors at the company’s annual meetings in Omaha, Nebraska, he doesn’t hold quarterly conference calls with analysts. Buffett didn’t immediately respond to a request for comment sent to an assistant on Monday.

Clearly, what would be large transactions for other businesses are now small at Berkshire. In August, the company agreed to pay about $32 billion for an aerospace parts manufacturer in one of Buffett’s largest deals ever.

Berkshire had more than $545 billion in assets at the end of September. The company’s market value is about $330 billion. Class A shares slipped 0.5 percent to $202,080 as of 9:44 a.m. Monday.

“One of the issues we struggle with in Berkshire is that nothing makes a difference, because everything is so big,” said Meyer Shields, an analyst at Keefe Bruyette & Woods.

For that $1 billion, a subsidiary of Berkshire’s Marmon unit acquired the tank cars and other railroad equipment. The transaction was one of a series of divestitures that GE has undertaken to retreat from financial services and focus on industrial operations.

‘Mad Scientists’

Another Berkshire deal last year was disclosed in a similar way. Buffett announced in October 2014 that he was buying Van Tuyl Group, one of the largest auto-dealership businesses in the U.S. The $4.1 billion purchase price wasn’t announced until a quarterly filing in May.

Subsidiaries like those -- and a one-time gain on Buffett’s investment in Kraft Heinz Co. -- helped Berkshire post record net income of $9.43 billion in the third quarter, double what it reported a year earlier.

Berkshire benefited from a rebound in insurance operations and better results at the railroad, said Jim Shanahan, an analyst at Edward Jones & Co. But understanding how the businesses are doing at a more granular level remains a challenge, he said.

“It’s very difficult to forecast earnings for a company” that has so many different parts, Shanahan said. “We’re not mad scientists.”

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