$20 billion deployed, Buffett's still a buyer

Billionaire-watchers say he's still looking for out-of-favor gems

August 10, 2002|By BLOOMBERG NEWS

OMAHA, Neb. - Multibillionaire investor Warren Buffett's Berkshire Hathaway Inc. is on a $20 billion buying spree that some investors say has only just begun.

So far this year, Buffett has joined with Lehman Brothers Holdings to provide $2 billion in financing to energy concern Williams Cos., invested $100 million in telecommunications specialist Level 3 Communications Inc. and bought two gas pipelines - one from Williams for $450 million and one from Dynegy Inc. for $1.88 billion in cash and debt.

After spending $4.24 billion this year and more than $15.4 billion over the past two years, Buffett still has as much as $40 billion in cash and short-term investments available for acquisitions. He said in his annual letter to shareholders in March that he wants to make acquisitions in the $5 billion to $20 billion range.

"Absent a major catastrophe, this should be Berkshire's best year ever," said Keith Trauner, an analyst at Fairholme Capital Management, which manages $33 million and owns Berkshire shares.

The stock market rout has created investment opportunities for Berkshire, and is also helping the company's insurance businesses maintain price increases instituted since the Sept. 11 terrorist attacks, which cost Berkshire $2.28 billion of the $58 billion tab to the entire insurance industry.

Yesterday, Berkshire reported second-quarter earnings of $1.05 billion, or $681 a share, compared with $773 million, or $506 a share, posted for last year's second quarter.

"He's buying great assets from companies whose holding companies are in distress," said Fairholme's Trauner. Kern River, the pipeline Buffett's MidAmerican Energy unit bought from Williams, "is a great asset," Trauner said, considering how much it would cost in time and money to lay a new pipeline.

In his letter to investors, Buffett decried what he said was a lack of investment opportunities, saying Berkshire's size as well as market conditions such as outsized valuations make it impossible to replicate the company's past successes.

"Two conditions at Berkshire are far different from what they once were: Then we could often buy businesses and securities at much lower valuations than now prevail; and more important, we were working with far less money than we now have," he said.

Times have changed since the March 9 letter, investors say. The Standard & Poor's 500 index has lost more than 26 percent and the Dow Jones industrial average has lost 22 percent.

"This is the ideal market for Warren Buffett," said Guy Spier, a money manager at Aquamarine Fund, which has 27 percent of its $30 million in Berkshire stock. "With the Dow cheaper, opportunities are likely to be better. If the Dow were down to 10 times earnings, he would be in even better shape."

Buffett, who turns 72 this month, declined a request for an interview on possible acquisition targets. At his company's 2001 annual meeting, he said asbestos litigation is a "cancer" that will keep stifling U.S. businesses. He also said Berkshire may buy companies forced into bankruptcy.

"He's looking for things that are out of favor," said Bill Batcheller, a money manager at National City Corp.

Among the out-of-favor industries Buffett might be targeting are the asbestos, energy, insurance and pharmaceutical industries, investors said.

Shares of Berkshire gained $110 to $71,000 yesterday on the New York Stock Exchange. They are down 6 percent this year.

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