Buffet's Berkshire Buyout Trifecta

Things have not been great lately for Warren Buffett and Berkshire Hathaway (BRK.A) shareholders. BRK stock has dropped more than 20% since December and large Buffett holdings in the financial services area such as American Express (AXP), Wells Fargo (WFC), Moody's (MCO), and U.S. Bancorp (USB) are hurting his equity portfolio. Buffett has also taken some heat for publicly bashing the use of derivatives, but privately writing billions in credit default swaps.

Despite the recent headwinds, you may have noticed that Buffett is still hitting some home runs. Just this year three Buffett investments have received takeover offers, all at significant premiums of 50% to 80%. What is amazing to me has been the prices offered for some of these companies. For instance, Mars is paying 32 times 2008 earnings for Wrigley (WWY). Dow Chemical (DOW) just offered a staggering 11.5 times EBITDA for chemical company Rohm and Haas (ROH).


Those are hefty prices by any measure, so I will be interested to see how smart those deals turn out to be several years from now. Buffett, for one, seems to think $80 per share is a bit steep for Wrigley. He is selling his stake to Mars for $80 per share, providing financing for the deal, and after the deal closes he inked a deal to buy a stake in the Wrigley subsidiary at a discount to the $80 purchase price. Not a bad deal if you can get it.

Disclosure: The author and/or his clients were long shares of Anheuser-Busch and U.S. Bancorp for investment purposes, and Wrigley as a merger arbitrage play, at the time of writing

Comments

[Omaha_farm_boy]

Well, Chad ... I'm writing from Lovely Omaha. I've been investing for over 30 years -- and am pretty independent. There have been times that I've thought Warren wrong ... and it's seldom true. I meet with him every year for 4 or 5 hours, and he answers EVERY question. Just me and Warren -- and (this year) just over 30,000 other close friends in the Qwest center. I've done fine watching, and sometimes following. Home run in PTR, (that's a 4 bagger to any newbies) but only a 50% gain in BUD. Oh well. My wife isn't active, but will always remember telling me to buy Berkshire at 8,000 or 9,000. "That's absurd." says me. I don't think the old boy's slipped yet!

[Omaha_farm_boy]

Well, Chad, Every time that I think that Warren is wrong, 99% of the time it's me. I meet with him every year for 4 or 5 hours ... he answers every question. Just me and Warren ... and (this year) about 30,000 other friends at the Qwest center. I've done OK following him too ... like a home run in PetroChina (that's a 4 bagger to any newbies). My BUD is only gonna get me about 50%. Bummer. I've been investing almost 30 years -- my wife isn't too active except that she remembers telling me that I should buy BRK when it was it was between 8 and 9,000. I thought that was insane -- see how much I know?

[Omaha_farm_boy]

I thought the first one vanished. Sorry all.