OMAHA WORLD HERALD: Gates still has plenty of stock in Berkshire

By Steve Jordon

Originally Published Sunday October 4, 2009


WORLD-HERALD STAFF WRITER 

Bill Gates' foundation has been selling Berkshire Hathaway Inc. stock but still has more money invested in Warren Buffett's Omaha-based company.

The reason: Berkshire's stock price has been gaining faster than the Bill & Melinda Gates Foundation has been selling the shares.

On July 1, Buffett made his yearly contribution of Berkshire Class B shares, part of his pledge to give most of his wealth to the foundation over a period of years. This year, the donation was 428,688 shares, worth $1.25 billion.

The latest donation boosted the foundation's holdings to 1,679,838 shares, according to filings with the Securities and Exchange Commission. (Each Class A share of Berkshire can be converted into 30 shares of Class B. The Class B shares can't be re-converted into Class A stock.)

The stock was priced at $2,924 per share July 1, making the foundation's shares worth about $4.9 billion.

By the end of last week, the foundation had sold 50,200 shares, an average of 740 shares per trading day, reducing its shares to 1,629,638.

Due to the 10.2 percent rise in Berkshire's stock price since July 1, those shares are worth $5.3 billion.

A year ago, the Gates Foundation's Berkshire shares were worth even more — nearly $5.9 billion — even before Buffett's 2009 donation. Berkshire's shares are still 30 percent below their year-ago price.

Proceeds from the foundation's recent sales have totaled about $150 million. The money could be headed for its charitable programs or it may be going into other investments to await spending.

Buffett has said he expects the foundation to sell all the Berkshire stock and spend the proceeds over the next several decades. Selling the stock won't depress the day-to-day price, he has said, because the total number of shares traded each day is relatively small, even with the foundation's recent regular sales.

Vanity Fair

Buffett raised objections to a deal that former Treasury Secretary Henry Paulson tried to arrange during last year's financial crisis, saying Paulson was too closely tied to Goldman Sachs Inc., according to the issue of Vanity Fair due out this week.

Rawstory.com reported on the magazine's account of Paulson's effort to have Goldman acquire troubled Wachovia Corp., calling for the Federal Reserve to supply financial guarantees.

Andrew Ross Sorkin, in an excerpt from a forthcoming book printed in the magazine, said the deal was nearly completed. Paulson contacted Goldman CEO Lloyd Blankfein, who also was a board member of Wachovia, and Wachovia CEO Robert Steel, a former vice chairman of Goldman and a former No. 2 man at the Treasury Department under Paulson.

Buffett also was contacted about investing in the merged company, Sorkin reported, but told a banker at Goldman that it would never happen.

“By tonight, the government will realize they can't provide capital to a deal that's being done by the former firm of the Treasury secretary with the company of a former vice chairman of Goldman Sachs and former deputy Treasury secretary,” Buffett said, according to the book. “There is no way. They'll all wake up and realize, even if it was the best deal in the world, they can't do it.”

Others also realized the deal would harm Paulson's credibility and feed conspiracy theorists, who would accuse Paulson of helping his friends financially.

Sorkin wrote that the deal died after Paulson, Fed Chairman Ben Bernanke and Timothy Geithner, president of the Federal Reserve of New York at the time and now Treasury secretary, decided against it, in part, because of the “optics” of Goldman's ties to the government.

Buffett eventually invested $5 billion in Goldman to help its finances. Dec. 31, 2008, Wachovia was acquired by Wells Fargo & Co., of which Berkshire is a major stockholder.

Richest man

The chairman and CEO of the electric car company that attracted an investment by Berkshire is China's richest man, the London Telegraph reported.

Wang Chuanfu, 43, of BYD Inc., is worth $5.1 billion following gains in the price of his company's stock, triggered in large measure by Buffett's investment, the newspaper said.

“I was shocked, I really was,” said Rupert Hoogewerf, who keeps track of Chinese billionaires. “There's no way you could have predicted he would rise to the top, but we could not find anyone else worth as much.”

Wang's parents were poor farmers who died while he was in school. He worked as a government researcher before borrowing $300,000 from relatives in 1995 to start a company that makes rechargeable cell phone batteries.

The battery business led to the electric car business, attracting the attention of Berkshire's vice chairman, Charlie Munger. Berkshire invested $232 million in BYD, receiving about a 10 percent stake that is worth about $1 billion more today.

BYD so far has sold fewer than 100 of the electric cars but plans to begin large-scale production and sales in China soon and to enter the U.S. market next year.

The newspaper said the “Buffett effect” helped drive up the stock's price more than 380 percent so far this year.

Stock price

Over the past year, Buffett's wealth declined the most, dollarwise, among those listed in Forbes magazine's new tally of the richest Americans. The decline was due to Berkshire's stock price.

Once more than $140,000 for a Class A share, the price dipped as low as $70,050 during the market crunch before recovering to the $100,000 range recently.

Buffett's Berkshire shares were worth nearly $59 billion at one point last year, before the market slide and before his Gates Foundation donation. Forbes, which released its list last week, put his wealth at $40 billion, second place behind his friend, Microsoft founder Bill Gates.

The 400 people on the Forbes list saw their combined wealth decline by $300 billion from a year earlier, the magazine reported, to $1.27 trillion, thanks to falling stock and real estate prices. Counting divorces and fraud, the magazine said, 314 of those on the list had less wealth than a year ago.

Gates, whose net worth declined by $7 billion to $50 billion, beat out Buffett for the 16th straight year, Forbes said.

If you combined the fortunes of the four Walmart heirs, they would be No. 1 with $80 billion. The top 10 lost $39.2 billion, or 14 percent of their wealth, Forbes said. The biggest gainer was Dallas banker Andrew Beal, who tripled his wealth to $4.5 billion by buying up cheap loans and assets during the market decline.

Successor

Berkshire's financial deals won't be as profitable under Buffett's successor, according to an analyst with Stifel Nicolaus & Co.

Bloomberg News reported that as an example, Meyer Shields cited the 10 percent annual return that Berkshire is getting from its $8 billion investments in Goldman Sachs Group Inc. and General Electric Co. last fall, when the credit shutdown left the companies needing financial backing.

“When Berkshire bought preferred shares from Goldman Sachs and GE, it's very likely that the imprimatur of the world's most famous investor conveyed a level of confidence that itself contributed to the deals' very generous terms,” Shields said. “Thanks to its solid cash position, Berkshire should always be a competitive acquirer, but the economic impact of Buffett's ‘halo' will probably fade.”

Buffett, 79, has said Berkshire has a succession plan in place, likely splitting his duties among one or more investment officers and a chief executive.

“We expect the ‘Buffett Premium' to wane as the inevitable transition approaches,” Shields wrote in a research note. “Buffett's knowledge and skills are replaceable, but since his iconic status isn't, the economic attractiveness of Berkshire's future investment opportunities will likely decline.”