Transition Time

Sizing Up Warren Buffett's Successor

As the 87-year-old Oracle said, this transition period could last a long time, or it could happen tomorrow.
Photographer: Daniel Acker/Bloomberg
BERKSHIRE HATHAWAY INC-CL A
-1469.00
At Closing, January 18th
320000.00 USD
ORACLE CORP
-0.04
At Closing, January 18th
50.23 USD

Greg Abel and Ajit Jain are shaping up to be the next generation's Warren Buffett and Charlie Munger -- the largest shoes anyone in Corporate America will have to fill.  

On Wednesday morning, Berkshire Hathaway Inc. announced that both executives were added to the board. Abel, the company's energy division head, was appointed vice chairman of non-insurance business operations and Jain, who runs reinsurance, was made vice chairman of everything insurance-related. It's a significant gesture toward Buffett's succession and the clearest indication yet as to who will lead the conglomerate when the Oracle of Omaha is gone. Buffett is 87, while his trusty sidekick Munger just turned 94 last week. They're staying in their own current roles as chairman and CEO and vice chairman, respectively.

Buffett is still keeping mum about which of the men will replace him to lead the world's sixth most valuable public company -- nowadays the only non-tech entity to rank that high -- but it's noteworthy that Abel has been elevated to a role in overseeing everything except Jain's turf. Both check the boxes for what Buffett is seeking in Berkshire's next chief, and "they've both got Berkshire in their blood," Buffett said Wednesday. That said, people who had recently spent time with Jain told Bloomberg News that he's been facing some health challenges that could eventually make working more difficult.

Old School

The 10 biggest publicly traded companies are dominated by tech firms, but Berkshire is holding strong:

Source: Bloomberg

At 55 years old, Abel is more than a decade younger than Jain, and Buffett has said he wants someone who is "relatively young" and can serve for a long time. The insurance business also accounts for a smaller piece of the pie than it once did, as Buffett acquired a railroad, energy assets and numerous consumer and industrial businesses along the way. 

All Things Berkshire

Over five decades, Warren Bufffett has adjoined a wide-ranging set of businesses into a cash-yielding powerhouse. Can his successor carry on his dealmaking?

Source: Bloomberg

The decision naturally raises questions as to whether Buffett's or Munger's health has taken a turn, though Buffett assured listeners during his CNBC interview Wednesday that nothing's changed in that department and that he would alert shareholders immediately if he did have a health issue. Still, it's noticeable that he's aged since his last public appearances.

Buffett has always taken a pragmatic approach to his succession and wants to put everything neatly in place while he's lucid. He added Wednesday that it's important for Abel and Jain to get familiar with running operations beyond the ones for which they've been chiefly responsible.

A smooth transition is of utmost importance because regardless of the qualifications and achievements of the next in line, Berkshire shareholders will still have their doubts and that will likely impact the stock price. Buffett doesn't agree, positing last May that if he were to "die tonight, I think the stock would go up tomorrow." Perhaps, but regardless, some investors are already speculating whether a breakup or other changes will happen once he steps aside.

Happy New Year

Berkshire has rallied in the first few days of 2018, climbing and holding above $300,000 a share, even as Warren Buffett struggles to find a large deal for shareholders to get excited over

Source: Bloomberg

The only valid reason for dismantling the empire he built is if it becomes too difficult for the next CEO -- cough, Abel -- to allocate capital in the way Buffett has, primarily by identifying cheap, high-return acquisitions that make use of Berkshire's ever-growing pile of cash. Buffett himself has struggled to do that in this environment, raising the prospects of a potential dividend. Even so, Berkshire's latest earnings helped make his case for maintaining such a sprawling conglomerate, with last year's slump on the insurance side being offset by a rebound at the BNSF railroad and strength in the manufacturing operations. 

I still think transparency will be a major issue for Abel and Jain. Buffett's celebrity and long track record have allowed him to flout some of the conventions adhered to by other CEOs, such as earnings calls and more detailed quarterly statements, but his replacement likely won't be afforded that luxury.

Abel and Jain should use their new, higher-profile positions to become better acquainted with investors and gain their trust. Like Buffett said, this transition period could last a long time, or it could happen tomorrow.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Tara Lachapelle in New York at tlachapelle@bloomberg.net

    To contact the editor responsible for this story:
    Beth Williams at bewilliams@bloomberg.net

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