A trial is set to be held early next year on the Haslam family’s complaint it could lose a billion dollars due to Berkshire’s adoption of a new accounting method at Pilot Travel Centers after it took control of the truck stop operator earlier this year with an 80% stake.
Berkshire had proposed holding the trial in November 2024.
She is asking both sides to be ready for a trial lasting just one or two days early next year on the narrow question of whether Pilot, which represents the Haslam family’s remaining 20% stake in PTC, has the right to block Berkshire from making accounting changes at the company.
Pilot’s Jimmy Haslam, who also owns the Cleveland Browns NFL team, appears with Warren Buffett in a live CNBC interview on October 3, 2017. Haslam’s father, Jim Haslam, founded the original Pilot company in 1958.
It’s an important question because the Haslams have a 60-day window at the beginning of each calendar year, starting this coming January, in which they have the option to require Berkshire to buy their 20% stake at a price based on PTC’s earnings, but finalized after the option is exercised.
Pilot contends that Berkshire’s adoption of “pushdown accounting” at PTC will “artificially depress” its earnings, which in turn will reduce how much money the Haslams get for the remaining 20%.
In the initial complaint, the amount of money that Pilot says is at stake was redacted, but in today’s oral arguments lawyers said the Haslam’s payday could be reduced by around $1 billion.
William Lafferty, an attorney representing Berkshire, argued the accounting change was actually made before it took control, citing a March 2022 memo sent by a PTC executive to Berkshire “saying, essentially, let’s use pushdown accounting to avoid taking this big, in particular, compensation-related expense on the company’s books.”
He opposed an expeditated trial, saying Pilot has known since March, when it got a PTC financial statement, that pushdown accounting had been adopted, but delayed going to court until last month.
A view inside the Pilot Co. company’s headquarters in Knoxville, Tennessee, October 8, 2021. REUTERS/Harrison McClary
William Savitt, representing the plaintiffs, countered that Pilot knew PTC was using pushdown accounting in its financial statements but didn’t know if it would be used to calculate the price of its 20% stake.
“We tried to get a straight answer out of a business organization that is reputed to be amongst the most honorable in the world… We were not given a straight answer.
“It was like dealing with a Magic 8 Ball. We ask a question and get an answer along the lines of ‘You will see later,’ ‘Concentrate harder and you will get a better response,’ ‘It could be so.’ An absolute refusal to answer a very simple question.”
He said Pilot was still trying to resolve the issue with Berkshire until just before the suit was filed.
Judge Zurn told both sides to be ready for a short trial to be held before Pilot’s 2024 options expire at the end of February.
BYD sales continues even as EV maker’s profits soar
Munger did not explicitly say why Berkshire has been selling.
Munger praises Buffett’s Japan investments as ‘no brainers’
Munger covered a number of other topics during his appearance on the podcast.
He praised Buffett’s big investments in Japanese “trading houses,” saying they were a “no-brainer,” because Berkshire could borrow yen in Japan over nearly a decade while interest rates were very low and then use that money to buy the stocks that pay a dividend of 5%.
“If you are as smart as Warren Buffett, maybe two, three times a century you get an idea like that.
“It was like having God just opening a chest and pouring money into it. It was awfully easy money.”
But, he pointed out, it wasn’t something that just anyone could do, because Berkshire had the strong credit needed to borrow so much at such low rates.
Charlie Munger during a 2016 CNBC interview.
Munger also said Buffett’s caution over losing money for shareholders has held back Berkshire’s potential returns.
“Warren still cares more about the safety of his Berkshire shareholders than he cares about anything else. If we used a little bit more leverage throughout, we’d have three times as much now. And it wouldn’t have been that much risk, either. He never wanted to give the least chance of us screwing up our basic shareholder position.”
In addition, Munger said “it’s getting hard out there” to find investments at attractive prices, with “all this [expletive] and craziness.”
Asked if it is possible that “everything in the whole world is overpriced,” Munger replied, “Damn near. Of course, it can be possible. It’s not only possible, it’s likely and its actually happened.”
Will Berkshire make another big acquisition? “It’s at least 50/50. Venture capital has made it so difficult for everybody. They keep bidding the prices up and up and up, and of course that makes the results go down, down and down.”
“Most people probably shouldn’t do anything other than have index funds… Why should he try and pick his own stocks? He doesn’t design his own electric motors and his egg beater.”
“I think that one of the reasons I was as economically successful as I was in life is because I read so damn much all my life, starting when I was about six years old. I don’t know how to get smart without reading a lot.”
High interest rates for its cash expected to boost Berkshire’s profits
But Barron’s says Edward Jones analyst James Shanahan thinks higher interest rates could hurt Berkshire’s housing-related businesses, and weak results already reported by Union Pacific could be a bad sign for Berkshire’s BNSF railroad.
Net earnings, which include unrealized gains and losses from stock investments due to accounting rules, will be hit by the market’s poor performance during the quarter, but Buffett routinely advises investors to ignore those “meaningless” numbers because they have no lasting impact on the company.
Analyst: Berkshire shares at ‘attractive entry point’
Buffett’s favorite quote on the dangers of gambling on stocks (2021)
Warren Buffett cites a quote from economist John Maynard Keynes as he talks about how many newcomers are treating the stock market as a casino. Charlie Munger complains it’s shameful that some professionals are taking advantage of what he calls “the suckers.”
BERKSHIRE STOCK WATCH
BERKSHIRE’S TOP U.S. STOCK HOLDINGS – Nov. 3, 2023
Berkshire’s top holdings of disclosed publicly-traded stocks in the U.S., Japan, and Hong Kong, by market value, based on today’s closing prices.