Phillips 66 purchase a "great transaction" for Berkshire, but what about PSX?

For Berkshire Hathaway (BRK.A, BRK.B), the purchase of Phillips 66's (PSX +2.9%) specialty products unit has a lot to do with the tax treatment; the financial terms of the deal look like the cash-rich spinoffs used by Liberty Media when it acquired interests in businesses such as the Atlanta Braves and DirecTV.

The cash-rich split is a way for a holder of appreciated stock - PSX has gained 45% YTD - to dispose of it in a very tax efficient way, tax expert Robert Willens says, calling the acquisition a "great transaction" for Berkshire.

But Barron's Ben Levisohn wonders what the purchase might say about PSX: BRK chose to pay with ~19M PSX shares it already owns and not with cash - is it a sign Warren Buffett thinks PSX has run too far?

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Comments (6)
  • Mike Maher
    , contributor
    Comments (2865) | Send Message
    Buying back those 19m shares will save PSX about $30 million in dividend payments a year, which can now be redirected at the remaining shareholders.
    31 Dec 2013, 12:39 PM Reply Like
  • 8747S1115R
    , contributor
    Comments (286) | Send Message
    Good point above. It also reduces outstanding shares. I highly doubt Buffett thinks its run too far. He got in at the spinoff in the low 30's. PSX probably realized Buffett was willing to pay more with an all stock deal compared to cash and both sides were happy. PSX will easily go to $100 in the next couple years as the company increases its dividend and steadily buys back shares. This most likely just accelerated the process.
    31 Dec 2013, 12:42 PM Reply Like
  • Michael Fitzsimmons
    , contributor
    Comments (11668) | Send Message
    Up over $2 and 3%, I'd say it's working out pretty good so far. This transaction just continues what PSX has been doing since the spin-off: unleashing shareholder value. Look for either the Southern Hills or Sand Hills pipelines to be dropped down to the MLP in 2014:



    This will not only be a way for PSX to monetize more midstream assets, but will also over time increase tax advantaged distributions from PSXP. Excellent company, and as I have been saying, perhaps the best investment play on "shale USA".
    31 Dec 2013, 01:39 PM Reply Like
  • Michael Fitzsimmons
    , contributor
    Comments (11668) | Send Message
    Also, there is likely more to this deal than meets the eye. Clearly Buffett is working closely with PSX management, not only because he owns millions of shares and is taking a look at the assets, but remember, this is a very symbiotic relationship. PSX sources Canadian heavy and Bakken crude, and Berkshire's BNSF railroad ships it. Also, Buffett has a big slug of Suncor, and I am sure some of that is finding its way to PSX refineries. So there are a lot of moving parts here, and obviously Buffett and PSX management are looking to scratch each others' back.
    31 Dec 2013, 01:59 PM Reply Like
  • CLUB 198
    , contributor
    Comments (105) | Send Message
    I don't bet against Warren...
    31 Dec 2013, 05:12 PM Reply Like
  • Derek A. Barrett
    , contributor
    Comments (3554) | Send Message
    I sold my shares in my taxable account to take a profit, but considering establishing another slug in my retirement account as I like them for the long haul and energy is where it's at right here right now.
    1 Jan 2014, 03:06 AM Reply Like
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