Berkshire Hathaway Will Not Increase Wesco Bid

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Includes: BRK.A, BRK.B, WSC-OLD
by: The Rational Walk

Warren Buffett is not planning to increase the terms of his offer for the 19.9 percent stake in Wesco Financial Corporation (NYSEMKT:WSC-OLD) that Berkshire does not already own. In a filing with the SEC yesterday, Mr. Buffett characterizes the current offer as “fair” and clearly states that Berkshire has “no interest in effecting a transaction at a higher price”.

As we reported last week, Berkshire Hathaway has made an offer to acquire Wesco shares at book value which represents a premium to the market price of Wesco shares prior to the announcement of Berkshire’s bid. The deal has been structured in a manner that allows Wesco shareholders to exchange their shares for Berkshire Hathaway Class B shares in a tax free transaction. Wesco shareholders may also elect to receive cash for all or part of their holdings.

Mr. Buffett’s letter also clarifies the manner in which the purchase price will be calculated. The starting point for the calculation will take Wesco’s September 30, 2010 book value and then adjust that value based on an estimate of Wesco’s retained earnings from October 1 to the date of Wesco’s special meeting to vote on the proposal. In addition, changes in the fair value of investment securities will be calculated and Wesco’s book value will be adjusted accordingly. This assumes that the transaction will take place sometime during the 4th quarter.

Over the past few days, there have been reports of shareholder lawsuits claiming that Berkshire’s offer does not treat Wesco’s minority shareholders fairly. This seems like a dubious claim given the fact that the transaction will not proceed without a majority of the Wesco shares voting in favor excluding shares owned by Berkshire. While Mr. Buffett indicates no interest in a richer bid, he does say that if the transaction is not approved, there will be no “hard feelings” and Wesco will continue to operate as it has in the past.

In related news, Wesco announced yesterday that CORT will acquire Lounge22. Terms of the transaction were not disclosed.

Disclosure: The author of this article owns shares of Berkshire Hathaway. No direct position in Wesco Financial.