Warren Buffett balked at big acquisitions in 2017 because of high prices

Adjust Comment Print

2017 was a record year for corporate profits, and Berkshire Hathaway was not far behind.

H.J. Heinz Co, backed by Buffett's Berkshire Hathaway Inc and Brazil's private equity firm 3G Capital, acquired Kraft Foods Group in 2015 to create one of the biggest food and beverage companies in the world.

"The remaining $29 billion was delivered to us in December when Congress rewrote the U.S. Tax Code", he explained in the letter.

On Friday, Berkshire's Class A shares closed at $304,020.01, having risen above $300,000 a share for the first time ever in December on expectations that Trump's USA tax overhaul would pass into law.

Warren Buffett, chairman and chief executive, said in Berkshire's annual report that the operating results of Berkshire's business are more important for investors to consider than quarter-to-quarter changes in investment results or one-time events like the tax law change.

In the last few years, Buffett, 87, has shed many of his non-Berkshire responsibilities.

Berkshire Hathaway took $3 billion in losses from those three hurricanes, or $2 billion after taxes, Buffett wrote in the letter.

Buffett bemoans the acquisition frenzy on Wall Street that's been fueled by extraordinarily cheap debt, making it hard to find possible acquisitions at a "sensible purchase price".

Leverage might boost returns when prices go up, but it's devastating when prices go down, which is when solvent investors are able buy cheaply.

All that cash earning little to nothing is a drag on the conglomerate's earnings power, analysts say.

Buffett is the CEO of Berkshire Hathaway Inc., a conglomerate based in Omaha, Nebraska. It owns an array of blue-chip stocks now valued at over $170 billion (excluding shares of Kraft Heinz).

So Berkshire held almost $116 billion in cash and short-term bonds at year end. The company is the largest property-and-casualty insurer in the country measured by float, with $114.5 billion.

The immediate net windfall for Berkshire was $29 billion, which helped push Berkshire's net earnings to $44.94 billion in 2017 from $24.07 billion the prior year while offsetting declines in certain businesses.

Comments