Monday, September 26, 2011

Berkshire Hathaway Authorizes Share Repurchase

Well, it turns out we are going to get what is a rare share buyback by Berkshire Hathaway (BRKa).

Last Tuesday, I happened to explore the following question in this post:

Should Berkshire Hathaway Repurchase Its Own Stock?

To me, the answer was a firm yes. Berkshire Hathaway's recent stock price seemed an odd undervaluation when considering its combination of assets. A share repurchase made a lot of sense if you compare recent market prices to a conservative estimate of intrinsic value.

It all came down to whether other available investing alternatives were available for Berkshire Hathaway.

Otherwise, to me it was a no-brainer.

Well, we got explicit confirmation of Buffett, Munger, and the Board of Directors view six days after that post in the form of this morning's Berkshire share repurchase announcement.

Berkshire Hathaway Authorizes Repurchase Program

An excerpt from the announcement:

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.

Lately, he and Charlie Munger have been more than hinting that they think the stock is cheap. Something they've said infrequently.

Buffet & Munger on Berkshire's Stock

At recent prices, the market value implied that the non-insurance operating businesses have little to no value.

That's nonsense, of course.

It also implied that Berkshire's exceptional ability to allocate capital funded in large part by low cost insurance float was of little future value.

That also makes no sense.

The long run value of exceptional capital allocation abilities is harder to quantify but no less real.

Adam
 
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