Berkshire Hathaway 2008 Recap
Berkshire will release its Q408 earnings results this Friday later in the day, while the annual report and shareholder letter will be available on the company’s website at 8 a.m. this Saturday. Like most everyone else, 2008 wasn’t a rosy year for Buffett, and Buffett has been criticized in the press by some notable investors including Doug Kass. Questions have been asked about Berkshire’s long-term custom puts. While the company’s equity portfolio has been hit hard over 2008, Buffett has been able to deploy some of Berkshire’s cash in some customized transactions with several companies. Below I review Buffett’s transactions over the course of 2008 and in the first two months of 2009.
February 2008- The year started out with Berkshire taking a 3% stake in Swiss Re and entering into a proportional reinsurance contract with Swiss Re which effectively gave Berkshire 20% exposure to Swiss Re’s property and casualty business over the next 5 years. This gave Berkshire a stake in an attractive growth business on the cheap, and effectively saw Swiss Re surrender 20% of a highly profitable business.
February also saw activity in Berkshire’s equity portfolio. First, there was disclosure of Berkshire reducing its holdings in Iron Mountain (IRM), a company that warehouses company records, by more than 50%. Later on in the month, Berkshire disclosed a large position in Kraft (KFT) as the largest shareholder with an 8.6% stake. Berkshire also added a new position with GlaxoSmithKline (GSK), a stock that was heavily out of favor.
April 2008- Berkshire agreed to help finance Wrigley’s merger with Mars, and provided $4.4B in subordinated financing and a $2.1B equity interest in Wrigley at a discount to the Mars offer. Wrigley was considered to be a company that Buffett has always admired.
July 2008- Berkshire bought $3B in Dow Chemical (DOW) convertible preferred stock to help with financing for Dow’s Rohm & Haas acquisition.
September 2008- Berkshire’s MidAmerican announced a deal to buy Constellation Energy (CEG) for $4.7B. The deal would later fall through, although Berkshire earned an attractive breakup fee of $175M. Berkshire also purchased $5B preferred stock in Goldman, Sachs (GS) with a 10% dividend yield.
October 2008- Berkshire bought $3B in General Electric (GE) preferred after GE credit default swaps surged to 740 basis points. October also saw Berkshire disclose an increased position of 19% of shares outstanding in Burlington Northern Santa Fe (BNI).
January 2009- Berkshire boosted its stake again in BNI to 22%.
February 2009- Berkshire disclosed that it bought $300M in debt in a $600M offering from Harley Davidson (HOG), to help fund Harley’s financing business. Berkshire bought notes from Sealed Air (SEE) in a private offering of $300M, buying $150M in Sealed Air senior unsecured debt. Berkshire also disclosed that it bought $400M in debt from Vulcan Materials (VMC), an aggregate company.