Shareholders of Berkshire Hathaway Inc. are
becoming more comfortable with the idea of life after Warren Buffett. For
years, the conglomerate’s chief executive has elicited both admiration and envy
for the deals he has pulled off, but a related question has long weighed on
Berkshire investors’ minds: What happens when he is gone?
Many shareholders say they are coming around to the idea
that Berkshire’s diversified structure and ironclad balance sheet will give the
conglomerate continued access to many of the privileges that have long been
attributed to its CEO. The benefits of Berkshire’s evolution from investor to
operator of a wide range of cash-generating businesses will be on display Friday
when the company is expected to report strong first-quarter earnings
attributable mainly to growth in its manufacturing, services and energy
businesses.
Mr. Buffett, who turns 85 in August, has tried in recent
years to reassure shareholders that Berkshire is built to outlast him. In many
respects, Berkshire has never been stronger. Its market value, currently at
$350 billion, keeps going up. So do its overall annual profit and revenue. As
of the end of 2014, it had about $60 billion of cash and a $116 billion
portfolio of stocks. It owns about 80 businesses, including nine that would be
large enough to join the Fortune 500 were they stand-alone companies. Analysts
say its credit rating is among the best in the insurance industry. Berkshire
shares rose 28% last year but are down about 5% year-to-date.
Despite its large footprint in the global reinsurance
market, Berkshire has largely escaped the postcrisis regulatory scrutiny faced
by rival insurers due to the strength and liquidity of its balance sheet and
varied sources of earnings. Mr. Buffett likes to remind shareholders that
during the 2008 financial crisis, Berkshire lent more than $15 billion to
several blue-chip companies, from Goldman Sachs Group Inc. to General
Electric Co., on extremely favorable terms, giving it a reputation as a
“lender of last resort.”
In a research note this week, Barclays PLC analyst Jay
Gelb wrote that Mr. Buffett’s successor “might be offered fewer opportunities”
to do large, exclusive financial deals such as those Mr. Buffett struck during
the financial crisis. Although Mr. Buffett has said such deals aren’t central
to Berkshire’s future, they have paid billions of dollars in dividends and have
burnished the conglomerate’s reputation as a cash-rich, risk-averse financier
where decisions are made swiftly.
Mr. Buffett has long been the face of Berkshire and its
chief spokesman, shaping people’s perceptions about the company as he
transformed it from a flailing textile mill into a behemoth. As succession has
become a central concern of shareholders, however, Mr. Buffett has talked more
about the future of Berkshire without him—a task made more challenging by the
man being synonymous with the institution.
Shareholders say it is reassuring that some younger
Berkshire executives are taking on additional responsibilities on Mr. Buffett’s
watch. David Kass, a Berkshire shareholder and professor of finance
at the University of Maryland, said Ted Weschler and Todd
Combs,the two stock pickers Mr. Buffett hired a few years ago as part of his
succession plan, have performed well for most of their time at Berkshire. At H.J. Heinz Co., which is co-owned by
Berkshire and 3G, Mr. Buffett’s financial assistant Tracy Britt Cool and Greg
Abel, the CEO of Berkshire Hathaway Energy, are on the board along with 3G
executives.
However, Mr. Lountzis said he and other Berkshire watchers
have debated whether Mr. Buffett could do more to hand over the reins to top
executives, including introducing them to the wider world and letting them make
more companywide operational decisions.
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