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Warren Buffett’s Berkshire Hathaway Inc. announced plans to buy the 19.9 percent it does not own of Wesco Financial Corp., a company run by Berkshire Vice Chairman Charlie Munger, in a transaction now valued at about $514 million.
Wesco shares closed 11.8 percent higher, rising $38.25 to $363.00 on the American Stock Exchange, after Berkshire revealed the proposal in a U.S. Securities and Exchange Commission filing early Thursday afternoon.
The companies have yet to agree on a transaction or its timing, Berkshire said.
Based in Pasadena, California, Wesco has three main businesses: insurance, through its Wesco-Financial Insurance Co. (including the National Indemnity group of insurers) and Kansas Bankers Surety Co. units; furniture rental, through its Cort Business Services Corp. unit; and steel, through its Precision Steel Warehouse Inc. unit.
Berkshire acquired its 80.1 percent stake in Wesco more than 30 years ago. Munger, 86, has been Wesco’s chairman and chief executive since 1984, and Berkshire’s vice chairman since 1978. Buffett turns 80 on Monday.
“Charlie Munger is 86 and won’t be chairman forever, and it may be time to simplify the company and collapse it into Berkshire,” said James Armstrong, president of Henry H. Armstrong Associates in Pittsburgh, who oversees $400 million and owns Berkshire stock. “It is essentially a Berkshire unit already, so a full takeover is not enough to move the needle, but it saves money for Wesco not to remain public.”
In Thursday’s filing, Omaha, Nebraska-based Berkshire said it decided on Aug. 25 to propose a takeover, in which it would swap Class B shares or cash valued at Wesco’s book value per share in exchange for Wesco stock.
Wesco’s book value, measuring assets minus liabilities, was about $353 per share on June 30, a regulatory filing shows. First-half profit rose 33 percent to $43.6 million, or $6.12 per share, on revenue of $388.9 million.
“I welcome the news,” said Frank Betz, a principal at Carret/Zane Capital Management LLP, which invests $800 million and owns Berkshire stock.
“The more commitments Buffett can make to put Berkshire on autopilot for after his departure leaves the company in better shape for its shareholders,” Betz went on. “Buffett also has an ongoing problem with deploying all of Berkshire’s cash.”
Wesco and Berkshire did not immediately return calls for comment. Berkshire owns about 80 businesses, and ended June with $27.95 billion of cash.
Buffett last used Class B shares in an acquisition in February, when Berkshire paid $26.5 billion to buy the railroad company Burlington Northern Santa Fe Corp.
Bill Gates, the Microsoft Corp. co-founder and Berkshire director, owns 1.26 percent of Wesco shares, Thursday’s filing said.
The transaction requires approvals by the companies’ boards and by a majority of Wesco shares not owned by Berkshire.
Wesco’s annual shareholder meetings would likely end. Armstrong recalled that Munger at May’s meeting said Berkshire might acquire all of Wesco “sooner than you think.”
Berkshire Class A shares closed Thursday down $673 at $114,433, and its Class B shares fell 43 cents to $76.37.
(Reporting by Jonathan Stempel; editing by Andre Grenon, Bernard Orr and Matthew Lewis)