The Haslam family, which sold Berkshire Hathaway a controlling stake in Pilot Travel Centers, is accusing Warren Buffett’s company of using an accounting change to reduce the price it would have to pay to purchase the remaining 20% of the travel company.
Six years later, there is some tension in the relationship.
Earlier this year, as part of the original deal, Berkshire purchased an additional 41.4% interest in PTC, giving it a total of 80%, and took control of the company.
This week, in a complaint filed with the Delaware Chancery Court, the Haslam family accuses Berkshire of adopting an accounting method at PTC that could reduce the price it would get if they decide to sell the remaining 20% to Warren Buffett’s company.
Pilot’s Jimmy Haslam appears with Warren Buffett in a live CNBC interview on October 3, 2017.
The original deal gives them a 60-day window at the start of every calendar year, beginning this coming January, to require Berkshire to buy the rest of PTC (a “Put Right“) using the same formula that determined the price of the first two transactions: ten times PTC’s earnings before interest and taxes, with adjustments for cash and debt.
But the complaint contends Berkshire decision to use “pushdown accounting” will “artificially depress” PTC’s earnings, which in turn would reduce the amount the Haslam family would get for the remaining 20%.
It says the “economic results are dramatic,” but the number cited in the complaint has been redacted from the public version.
Excerpt from Pilot Corp v. Abel complaint, Case No. 2023-1068-MTZ, Delaware Chancery Court
Pilot says it had a deal with Berkshire giving it the right to veto any change in “accounting policies” not required by law and has “repeatedly registered its refusal to consent to Berkshire’s unilateral and self-interested imposition of pushdown accounting.”
It has also “repeatedly requested assurances” that Berkshire won’t use the pushdown accounting version of PTC’s earnings in calculating the price of the remaining 20%.
But, Pilot says, Berkshire continues to use pushdown accounting and has “refused … to provide the assurances Pilot has sought,” accusing the company of being “intent on using the accounting change to justify grossly underpaying Pilot for its 20% interest.”
REUTERS/Gary McWilliams
Warren Buffett is not a named defendant in the suit, but the complaint says Jim Haslam, Jimmy Haslam’s father and the founder of Pilot, sought his confirmation earlier this month that pushdown accounting would not be used to put a price on the final 20% of PTC.
“Buffett refused to provide a straight answer to Haslam’s simple question. Instead, Buffett repeated: ‘I said that Berkshire will comply with the terms of the contract. That’s exactly what will happen,’ and that ‘when and if the Haslam family decides to exit, we will do exactly what the contract says.'”
That wasn’t good enough for the Haslams and their complaint was filed just days later.
Berkshire has not yet formally responded to the complaint.
Lawsuits against Berkshire are relatively unusual, compared to other enormous companies.
At the 1995 annual meeting, Buffett and Charlie Munger said they try to avoid court battles by only dealing with people “we like and admire and trust.” (Full clip below in “Highlights from the Archive.”)
After months-long pause, Occidental purchases resume
For the first time in almost four months, Berkshire Hathaway has bought more shares of Occidental Petroleum.
According to an SEC filing Wednesday, it purchased 1.3 million shares over the first three days of this week, paying a total of more than $264 million.
That is an average price of $62.83. Most of Berkshire’s previous purchases were in the high $50s.
Berkshire owns 228 million common shares, a stake of 25.8%, with a market value of $14.2 billion based on today’s close of $62.23 per share.
In its filing, Berkshire also says Occidental redeemed 7,067 shares of preferred stock by paying Berkshire $110,000 per share, which works out to more than $777 million.
In 2009, Berkshire received 100,000 shares of preferred stock as part of what was, in effect, a $10 billion loan to Occidental to help pay for its acquisition of Anadarko Petroleum.
Those preferred shares pay a hefty dividend of 8% a year, prompting Buffett to say at this year’s annual meeting that Berkshire doesn’t like it when they are redeemed, but “we’d be disappointed in them if they didn’t reduce it. It’s intelligent from their standpoint.”
Berkshire still has almost 85,000 preferred shares with a total redemption value of more than $9.3 billion.
For an enormous company, Berkshire Hathaway doesn’t get sued all that often. Warren Buffett and Charlie Munger reveal how they try to keep the company out of court.
BERKSHIRE STOCK WATCH
BERKSHIRE’S TOP U.S. STOCK HOLDINGS – Oct. 27, 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.
