Oracle of Omaha Warren Buffett hints at successors

Berkshire Hathaway chief gives shareholders at annual meeting an idea of who may take over when he finally steps down

Warren Buffett (C), CEO of Berkshire Hathaway, at the firm's annual meeting in Omaha. Bloomberg

Berkshire Hathaway’s annual shareholder meeting often features questions about the challenges and strategies of whoever succeeds chief executive Warren Buffett.

This year, investors got to see the likely candidates in action.

When confronted on a question about succession, Mr Buffett pointed out that deputies Greg Abel and Ajit Jain were there and available to take questions. The pair ended up fielding multiple queries on energy investments and insurance.

Mr Buffett, 88, and vice chairman Charlie Munger, 95, still grabbed the vast majority of the speaking time during the more than five hours of question and answers, and both gave no sense of wanting to step back from their roles in the sprawling conglomerate they’ve built.

But the appearances offered shareholders a bit more familiarity with two executives who took direct oversight of the company’s primary operating units last year, according to Bloomberg.

“The truth is Charlie and I are afraid of looking bad, those guys are better than we are,” Mr Buffett told shareholders. “They know the businesses better, they work harder by far, and you are absolutely invited to ask questions to be directed over to them at this meeting.”

Where Mr Buffett and Mr Munger often bring answers back to their central philosophies on investing and managing companies, Mr Abel and Mr Jain offered some more on-the-ground specifics. Mr Abel, 56, laid out the timeline for some of the firm’s clean energy initiatives and the competitiveness of its rates in Iowa, while Mr Jain, 67, rattled off how Berkshire’s Geico unit compared to key rival Progressive on profitability metrics.

Mr Abel, who runs all of Berkshire’s non-insurance operations, is seen as the more likely CEO successor because of his younger age and broader remit. Mr Buffett has repeatedly said that Mr Jain has probably made more money for shareholders than he has.

Mr Buffett said on Saturday investing deputies Ted Weschler and Todd Combs wouldn’t take questions as he doesn’t want the pair giving away "any secret sauce". One shareholder directed a question to the pair and Mr Buffett answered instead.

Here are some other takeaways from the company’s meeting and first-quarter results:

Mr Buffett said he’d like his company to deploy much more than $10 billion to help companies pursue acquisitions in the next couple of years.

Days after Berkshire agreed to inject $10bn of preferred equity in Occidental Petroleum to help finance an acquisition of Anadarko Petroleum, Mr Buffett said he’d like to put more cash to work that way, whether the next one comes along in a month or three years.

"It won’t be identical, I hope it’s larger," he said. "If there are any $10bn or $20bn or maybe even $50bn two-day transactions that are needed in the world, believe me they’ll think of Berkshire Hathaway for sure."

Berkshire has made similar investments in the past, committing $3bn to Dow Chemical’s purchase of a chemicals maker in the midst of the 2008 credit crisis, and another $6.5bn for Mars’ takeover of Wm Wrigley Jr that same year.

Mr Buffett has seen his firm’s hoard of cash and US Treasuries build to $114.2bn at the end of the first quarter, and that has dragged on the company’s overall performance. He has been looking for fresh ways to put that money to work, including seeking new acquisitions in Europe.

By committing financing for deals, Berkshire could partner or compete with banks which collect billions in fees for arranging debt and equity to fund takeovers. Berkshire has stakes in major banks including Goldman Sachs and JP Morgan, some of the biggest in that market. In the case of Occidental, Mr Buffett was informed of the opportunity by Bank of America chief executive Brian Moynihan.

Private equity firms including KKR have also expanded in the deal financing market, while other billionaire-backed entities like the Koch brothers’ Koch Equity Development have also been seeking yield from the business. Mr Buffett pitched Berkshire’s ability to get deals done quickly as the main reason for him to be the first call for such transactions.

"I can get a call on Friday afternoon and they can make a date with me on Saturday, and on Sunday it’s done," he said.

Separately, Mr Buffett received several questions on his stake in Kraft Heinz, which had to be excluded from Berkshire’s first-quarter earnings because Kraft Heinz still hasn’t filed its annual report for 2018 amid regulatory investigations.

Berkshire also repurchased $1.7bn of Kraft stock, reflecting Mr Buffett's difficulty in finding better uses for Berkshire's cash hoard, according to Reuters.

Mr Buffett acknowledged he would be willing to repurchase $100bn of stock if it became cheap enough, and Mr Munger predicted Berkshire would become "more liberal" with buybacks.

"This much cash is certainly a drag" for Mr Buffett, said Trip Miller, managing partner of Gullane Capital Partners in Memphis. "He and Charlie are certainly open that they missed it on several great businesses for many years. The purchases of Apple and Amazon are a good sign."

Mr Buffett said he and partners 3G Capital overpaid for Kraft Foods Group in its 2015 merger with HJ Heinz, which Berkshire and 3G had bought two years earlier. The company is performing well operationally, but has faced stiffer competition from newer brands, he said. Mr Buffett and Mr Munger also defended 3G and said they could work with Brazilian private-equity firm again.

“It’s not a tragedy that out of two transactions one worked wonderfully, and the other didn’t work so well,” Mr Munger said. “That happens.”

Mr Buffett has historically shunned investing in technology companies, but with the world’s five most valuable corporations now hailing from that sector, the billionaire was asked whether that should change.

He and Mr Munger expressed regret that they missed several stocks that exploded in value, including Google. Mr Munger offered that perhaps the company’s recent investment in Apple, which has yielded more than $10 billion in gains, atones for some of the missed opportunities.

Mr Buffett said several tech companies, including Amazon, could be evaluated in a way that wasn’t too far from the value investing framework he’s long espoused. But he said he wouldn’t be drawn into investing in businesses he didn’t understand and wouldn’t add teams of managers to be specialists in different industries.

Operating profit rose 5 per cent in the quarter to $5.56bn as the company benefited from gains at its railroad BNSF, its energy empire, and the manufacturing and retail businesses. That growth came even excluding any profit from Kraft Heinz, which is expected to be reported later.

Berkshire’s net income surged to $21.7bn from a loss of $1.1bn a year earlier as the firm’s $190bn stock portfolio accrued value. Unrealised gains and losses in the portfolio are counted toward net income under new accounting rules, which Mr Buffett said introduces unnecessary volatility into the results.

Mr Buffett has long been a critic of hedge funds and their fee structures, and on Saturday he expanded the aspersions to private-equity firms. He criticised how some funds present their performance and said that debt covenants had “really deteriorated” which could lead to more risk.

While Mr Buffett said “we don’t salivate over buying” the firm’s shares at current prices, Berkshire repurchased more stock in the first quarter than in all of 2018, when it relaxed its policy on buybacks. There could be quarters when the company is much more aggressive in buying back stock, he said.