In today’s newsletter: BYD sales continue, OXY starts chipping away at its expensive Berkshire loan, an arrest at the annual meeting, and some valuable toys.
Berkshire has now sold more than half its BYD stake
Berkshire Hathaway’s reduction of its stake in the Chinese electric carmaker BYD has reached the halfway point.
In a Hong Kong filing earlier this week, Berkshire revealed that as of May 2 it held 108.3 million shares, which is just under 10% of BYD’s outstanding shares.
It’s an overall reduction of almost 52 percent from the 225 million shares it purchased for $230 million in 2008.
The sales have locked in enormous profits for Berkshire. Even after cutting the stake, it has a market value of $3.3 billion.
(At the same time, the CEO of Berkshire’s Dairy Queen told Reuters that while the company is mindful of political concerns wherever it operates, Taiwan is one of several areas that “is on our list for exploration at this point.”)
BYD Chairman Wang Chuanfu, Charlie Munger, Warren Buffett, and Bill Gates at the launch ceremony for the BYD M6 vehicle in Beijing, September 29, 2010. Photo: REUTERS | Jason Lee
That raises the possibility the BYD sales may be related to the rising economic tensions between the U.S. and China that Charlie Munger called “stupid, stupid, stupid” at the shareholders meeting.
(I think it is extremely unlikely that the reduction is connected to Buffett and Munger lightheartedly saying Saturday that Tesla CEO Elon Musk is a “brilliant, brilliant guy” who doesn’t need to “overestimate” himself, but they don’t want to compete with his “dedication to solving the impossible.” In a tweet, Musk wrote, “Appreciate the kind words from Warren & Charlie.”)
But as Barron’s notes, while it is “still anyone’s guess” as to why Berkshire is selling BYD shares, “investors … are no longer shocked” that it is happening.
OXY starts chipping away at Berkshire’s expensive $10B loan
Occidental Petroleum has begun to pay back a small portion of what was, in effect, a $10 billion loan it got from Berkshire Hathaway in 2019 when it was so desperate for money to help pay for Anadarko Petroleum that it was willing to pay 8% a year for the financing.
In its first quarter 10-Q released Saturday morning, Berkshire says that in March, Occidental “issued mandatory redemption notifications” for $474 million worth of the preferred shares Berkshire purchased in 2019, paying 110% of their face value.
At the meeting, Buffett noted Occidental’s move, “which we don’t like, obviously. But we’d be disappointed in them if they didn’t reduce it. It’s intelligent from their standpoint,” since the interest rate is so high.
Barron’s points out that Occidental’s ability to repay the loan is limited by a formula in the deal “in which half of any money available for dividends and buybacks beyond $4 a share a year goes to paying off the preferred stock,” with the other half going to common shareholders.
OXY shares started Monday with a drop of around 2% in reaction to Buffett’s proclamation at the meeting that Berkshire would not make an offer to acquire all of the oil giant, squelching speculation that its ongoing purchases of common shares could lead to a bid.
One positive for Buffett, who likes when companies in Berkshire’s portfolio buy back their shares, is CEO Vick Hollub telling analysts that it will prioritize returning excess cash to shareholders over additional investments in technology to remove carbon dioxide from the air.
Right-wing shareholder activist arrested at Berkshire meeting
An activist shareholder was arrested during the formal business portion of Berkshire’s annual meeting and charged with trespassing after he refused a request to leave.
According toseveralreports, Peter Flaherty, the head of the conservative National Legal and Policy Center, had been speaking in favor of his shareholder proposal to separate Berkshire’s chairman and CEO roles so that the company would be “less identified with Mr. Buffett’s political activities,” including donations to the Gates Foundation, when he insinuated that Bill Gates was associated with Jeffrey Epstein’s sex trafficking of young women.
That prompted heavy booing from the audience and Buffett had Flaherty’s microphone cut off, saying he had “crossed a boundary” with a personal attack.
According to an NLPC account, he was then escorted off the floor of the meeting by an Omaha police officer.
Flaherty told the conservative Daily Signal web site he wants the charges dropped and an apology from Berkshire, saying, “I didn’t raise my voice. I was not disruptive.”
The proposal was rejected by shareholders, getting just under 11% of the vote.
Also available: CNBC’s “Squawk Pod” did three episodes this week on the “Weekend with Warren,” which include excepts from the meeting and “Squawk Box’s” coverage.
BERKSHIRE STOCK WATCH
BERKSHIRE’S TOP U.S. STOCK HOLDINGS – May 12, 2023
Berkshire’s top holdings of disclosed publicly-traded U.S. stocks, and BYD, by market value, based on today’s closing prices.
