March 29, 2024

DealBook: Buffett Amasses 5.5% Stake in I.B.M.

Warren Buffett, chief of Berkshire Hathaway.Charles Dharapak/Associated PressWarren E. Buffett runs Berkshire Hathaway.

Warren E. Buffett, the chairman and chief executive of Berkshire Hathaway, revealed on CNBC that his conglomerate had amassed 64 million shares of I.B.M, a stake of about 5.5 percent.

Berkshire now ranks among the largest shareholders in the company.

“They have laid out a road map, and I should have paid attention to it earlier,” Mr. Buffett said of the company on CNBC. Mr. Buffett, who indicated in the interview that he had not spoken with I.B.M. about his position, felt management had done “an incredible job.”

The $10.7 billion investment is unusual given Mr. Buffett’s long-stated aversion to technology stocks, particularly Internet stocks. Amid an Internet stock boom in 1998, he told Berkshire shareholders, “Technology is just something we don’t understand, so we don’t invest in it,” according to The Associated Press.

His letter to shareholders for 2000 boasted: “We have embraced the 21st century by entering such cutting-edge industries as brick, carpet, insulation and paint. Try to control your excitement.”

And while well known for his value investments, Mr. Buffett is buying I.B.M. at a premium price. The stock has been steadily rising all year, and is up more than 25 percent since January. At a recent $187 a share, I.B.M. currently trades near its record high.

Mr. Buffett said Berkshire had made other such plays in the past. He said the company bought control of Geico, the insurer, at its all-time high, and “bought railroads on the highs.” Berkshire Hathaway owns the Burlington Northern Santa Fe Corporation, which he acquired outright in 2009.

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The I.B.M. position will put Mr. Buffett neck and neck with State Street, the powerhouse Boston financial firm that also owns about 5.5 percent of the company’s outstanding shares, according to Bloomberg data.

The news comes as investment managers are set to release their third-quarter holdings. Though backward looking, these so-called 13F statements can cause market movements when closely watched investors like Mr. Buffett disclose their positions. Berkshire Hathaway is set to report its positions on Monday evening.

Article source: http://feeds.nytimes.com/click.phdo?i=80252f09397f2429b389415bca8040f3

DealBook: The Perils of Chasing Buffett


An investment by Warren E. Buffett is often seen as a harbinger of good fortune for a company’s shareholders.

When Berkshire Hathaway made a $5 billion investment in Bank of America last month, the stock quickly jumped — a phenomenon known as the Buffett bounce.

But it does not always pay to follow Mr. Buffett’s moves, at least when he buys preferred shares rather than common stock.

Consider his General Electric deal. Mr. Buffett, who in 2008 swooped in with a $3 billion investment for the troubled conglomerate, will net a tidy profit when G.E. pays back the money next month.

Warren Buffett, chief of Berkshire Hathaway.Charles Dharapak/Associated PressWarren E. Buffett, chief of Berkshire Hathaway.

Along with his principal, Mr. Buffett will take home an extra $300 million, as well as any accrued and unpaid dividends. During the course of his investment, the preferred shares paid a 10 percent annual dividend, or roughly $300 million a year.

Investors in the common stock have not fared as well over the same period. At the time of Mr. Buffett’s investment, shares of G.E. were trading at about $24.50. Today, they are down nearly 40 percent, at about $15.40.

It is a similar story with Goldman Sachs, which took a $5 billion lifeline from Mr. Buffett during the depths of the financial crisis.

The investment bank returned the cash earlier this year. As in the G.E. deal, Mr. Buffett and Berkshire Hathaway banked an annual 10 percent dividend, plus some extras when Goldman paid back the money. In all, Mr. Buffett took home $1.7 billion on the investment, or about $190,000 a day.

Goldman investors have not been as fortunate. When Mr. Buffett stepped onto the scene, the stock was selling for about $125 a share; it is now at about $104.

Of course, Mr. Buffett has an interest in seeing the stocks of Goldman Sachs and G.E. do well.

In both cases, he has warrants to purchase common shares of the companies at specific prices, which can be exercised through 2013. At current levels, those warrants are essentially worthless.

While it remains to be seen how Mr. Buffett will ultimately fare on his investment in Bank of America, the deal has all the hallmarks of those for Goldman and G.E. There is a 6 percent annual payout and a premium at redemption of $250 million.

And once again, Berkshire will share in any upside in the stock. Over the next 10 years, the company has the right to purchase 700 million shares at a strike price just north of $7.14. (The shares are currently at $7.)

But those stock gains would mainly be gravy.

Article source: http://feeds.nytimes.com/click.phdo?i=119ed4faf2a09e1358bf64599c3e6a9d