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Monday, September 26, 2011

Berkshire Hathaway Share Repurchase!

The unthinkable to long time Buffett followers seems to be happening.  Berkshire Hathaway has just announced that they will (or may) buy back shares.  Here's the press release:  Share repurchase

From the release:
Our Board of Directors has authorized Berkshire Hathaway to repurchase Class A and Class B shares of Berkshire at prices no higher than a 10% premium over the then-current book value of the shares. In the opinion of our Board and management, the underlying businesses of Berkshire are worth considerably more than this amount, though any such estimate is necessarily imprecise. If we are correct in our opinion, repurchases will enhance the per-share intrinsic value of Berkshire shares, benefiting shareholders who retain their interest.

Note that the release says that the underlying businesses of Berkshire are worth considerably more than 1.1x book value per share.

Why is this unthinkable?  For many years, Buffett has said he won't buy back share unless he sees no more opportunities to buy businesses.   Long term Buffett fans have said that he will never buy back shares, and if he did that would be bad news as that means BRK can't find any place else to put their money.

This situation seems to be a bit different.  BRK shares as I stated in a recent post is very, very cheap.  Share repurchases at this point makes a lot of sense to BRK, and as stated in the press release, this action would clearly be accretive to intrinsic value per share.

With this sort of validation/confirmation of value in such a rare statement from such a non-self-promoter and straight shooter as Buffett, you have to think BRK right now is just about the best investment opportunity available in the large cap area right now. 

2 comments:

  1. Yes, kk, I saw that and immediately thought about your post! Lol, you were prescient :-) However, the market immediately priced in the news and BRK went up (back then) 6%, at the open, and then finally 8% by the end of the day. But it will still go up, won't it? So what should be the price correction given the facts of the repurchase program, do you think?

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  2. Hi, I think it's still very attractively valued. First of all, book value will probably keep growing nicely and now we know for sure that even 1.1x book value is very cheap. Who knows what the right price is? 1.4-1.5x bps?

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