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Warren Buffett gave his shareholders a lesson Saturday in his company's future, with or without him, extolling the long-term advantages built into Berkshire Hathaway Inc. over 53 years of investing with the “consistency” he applied as its controlling owner.
“We're well-equipped to carry on,” Buffett said, adding later in a five-hour question-and-answer session that the successor he has in mind “will not turn off managers and has the culture of the company deeply embedded.”
An estimated 35,000 people attended the meeting, held at the CenturyLink Center Omaha. Buffett, chairman and CEO of Berkshire, and Vice Chairman Charlie Munger fielded more than 50 questions from shareholders and panels of journalists and financial analysts.
Buffett revealed: He might acquire more newspapers in cities where the focus is local news not available elsewhere; the allegations of bribery in Mexico by Walmart officials should not undermine the company's earning potential; and, in the past few months, he considered but didn't complete a $22 billion acquisition.
Throughout, the issue of succession was in the background as Buffett, 81, returned repeatedly to the theme that Berkshire was well-situated to continue to grow without him:
» He said that his two newly hired investment managers, Ted Weschler and Todd Combs, have been “home runs” for Berkshire and could handle all of its investments if need be.
» Buffett said the next CEO will be able to use the company's strengths just as well and would add new abilities to Berkshire. Buffett and Berkshire's directors have agreed on a successor, if one is needed, but have not revealed that person's name or told that person about their plans.
» Even when he's gone, Buffett said, his family likely will have 10 times the Berkshire voting power of any single shareholder. His eldest son, Howard, is designated as the next chairman of Berkshire, a non-executive position. Buffett has said the family and board members intend to preserve Berkshire's way of doing business and the CEO's role.
“It's not an impossible job,” he said. For example, Berkshire will continue to have large amounts of cash — currently about $33.6 billion — which means its next CEO could make huge investments. More important to Berkshire's future, he said, would be acquiring the right businesses, and Berkshire retains its advantage as the preferred home for good businesses looking for a long-term owner.
“Berkshire can act with speed and finality that is quite rare at American corporations,” he said.
As for the next CEO, he said, “in many ways he will be better than I am.”
Buffett repeated his comment that he is Berkshire's “chief risk officer,” protecting the company from financial catastrophe. “My successor will have the same responsibility. We would not select anybody for that job that didn't have those skills.”
He said it would be difficult for a 30-year-old, starting today, to re-create Berkshire over a 50-year investment career. Munger said that would be true even if Buffett were that 30-year-old. “But I'd like to try,” Buffett said.
He brushed aside concerns about the prostate cancer he revealed last month with characteristic humor, saying he deliberately made the announcement to “turn the spotlight on me” because his secretary, Debbie Bosanek, was getting too much attention for her higher income tax rate.
It was more than an hour into the questions before anyone asked about Buffett's health. Munger, 88, feigned jealousy about the sympathy Buffett has been getting lately.
“I probably have more prostate cancer than he does,” Munger said, adding that he doesn't know because he doesn't bother to have his prostate levels checked.
Buffett said his four doctors (all Berkshire shareholders, he pointed out) laid out the treatment options and give him a 99-plus percent chance of living at least another decade with the disorder.
“In all seriousness, it is a non-event,” Buffett said.
He was energetic and in good humor before and throughout the meeting. He spent about an hour walking through the convention hall, tossing newspapers, eating a Dilly Bar and touring booths of Berkshire companies as shareholders crowded around, held at bay by security guards.
During the meeting, Buffett said his prostate cancer makes no difference in his daily activities, and he won't miss a day of work while having radiation treatments this summer.
At one point, aiming for a record, Buffett directed shareholders to raise the See's Candies lollipops they found on their chairs in the air for a photo and then pop them into their mouths when he said, “Go!” Nearly everyone complied.
But this year's meeting also had the added substance of questions by the financial analysts, giving Buffett the chance to explain some of Berkshire's interior strengths. For example, he said that because the company's Geico auto insurance division has such long-term growth potential, it's worth many times the value listed by Berkshire under accounting rules.
Buffett also said Berkshire is headed for a good year in profits, with its major companies setting records. He said the company could make a $20 billion purchase today if the right deal came along. If there's no such purchase this year, Berkshire is gaining enough cash that it could consider a $30 billion deal next year.
Asked about sustainable energy, Buffett said Berkshire has an advantage in solar and wind energy projects because it pays federal income taxes and it can take full advantage of federal tax incentives for alternative energy.
The newspaper question, asked by a person from Yutan, Neb., through one of the journalists, was prompted by Berkshire's purchase of The World-Herald in December. “Was there some self-indulgence with this?”
Buffett said newspapers can be good businesses but must resolve the problems of high production and delivery costs and the practice of making their products available for free over the Internet.
A questioner from Georgia, through a journalist, suggested that as a CEO representing shareholders, Buffett should be less outspoken on political issues, such as advocating that high-income people should pay at least a tax rate similar to that paid by middle-class Americans. That idea prompted President Barack Obama to proposed a “Buffett rule” tax and adopt the issue in his campaign.
Some members of the audience applauded the question, but others applauded somewhat louder when Buffett defended his right to speak out, saying, “When Charlie and I took this job, we did not decide to put our citizenship in a blind trust.”
The questioner asked whether Buffett's political views were holding down the market price of Berkshire stock, saying that his father, in his 80s, wouldn't buy Berkshire stock for that reason.
“It sounds to me like he might want to own Fox,” Buffett said, referring to the cable TV channel with programs often regarded as having conservative viewpoints. The comment generated a loud response from the 18,000 people in the convention center's arena, a sort of cheer mixed with “Oooh!” and applause.
Buffett, a longtime Democrat, said he doubted his views affect the stock price, adding that people shouldn't decide on their investments or relationships based on whether they agree with someone's politics.
Several questions revolved around Berkshire's stock price, which has not increased much in recent years. Last year, it dropped to a point where Buffett put in place a plan for the company to buy its own stock when it dips too low.
Buffett said the stock price will “bob up and down” because the stock market sometimes acts like a “psychotic drunk,” but over time will reflect the true value of the company. He said he won't change the stock buyback plan or pay dividends.
Shareholder John Oehler, a retired CPA from Buffalo, N.Y., who came to the meeting with his wife, Virginia, said Buffett is “absolutely right” about the stock price.
“This is just one of those moments,” Oehler said. “The market will recognize the value of the company. I have no doubt about that. I would not be at all reluctant to buy shares.”
Pam Krengel, who works in the pharmaceutical industry in Boston, said she was satisfied with Buffett's explanation.
“I don't know if we got to the bottom of why it's not going up at a faster pace, but in the long haul I would expect it to improve,” Krengel said. “They have invested in companies where there's tremendous value.”
Buffett and Munger didn't spend much time discussing the overall economy but said they were amazed at today's high petroleum prices and low natural gas prices, plus the decline in the amount of electricity generated in the United States last year.
Munger said the nation should conserve its new natural gas reserves rather than burn it for electricity because it has better uses, such as in making fertilizer. Coal is better suited as a power plant fuel, he said.
Later, the two said they don't see America getting back to a 4 percent growth rate anytime soon.
Said Buffett: “It's nice to have 4 percent in real terms, but while 2.5 percent annual GDP growth might be slow in getting us out of the slump, it's a remarkable figure over a period of time.”
The Omaha World-Herald Co. is owned by Berkshire Hathaway Inc.
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