Comments on: Acquiring companies with stock http://blogs.reuters.com/felix-salmon/2010/01/27/acquiring-companies-with-stock/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: Archie Pellicone http://blogs.reuters.com/felix-salmon/2010/01/27/acquiring-companies-with-stock/comment-page-1/#comment-55503 Sun, 19 Oct 2014 04:09:35 +0000 http://blogs.reuters.com/felix-salmon/2010/01/27/acquiring-companies-with-stock/#comment-55503 76673 473127Great humans speeches and toasts, possibly toasts. are hands down transferred at some time through party and expected to turn into very funny, amusing not to mention educational in the mean time. best man wedding speeches 959134

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By: Beer_numbers http://blogs.reuters.com/felix-salmon/2010/01/27/acquiring-companies-with-stock/comment-page-1/#comment-11600 Thu, 28 Jan 2010 20:02:58 +0000 http://blogs.reuters.com/felix-salmon/2010/01/27/acquiring-companies-with-stock/#comment-11600 The comment I made wasn’t meant to deny that Buffett was a market mouthpiece. It was meant to point out that your statement (He has a derivatives bet the size of his entire company’s present value.. which requires the NYSE to remain elevated. Stock market falls? BRK goes BK.) was ridiculous.

If I wanted to deny the fact that Buffett was a market mouthpiece, I’d point to the 1999 Fortune article where he laid out very clearly why he viewed the stock market as extremely overvalued (while Berkshire had enormous market exposure): http://money.cnn.com/magazines/fortune/f ortune_archive/1999/11/22/269071/index.h tm.

If I wanted to point out that he’s fine pointing out when even Berkshire is overvalued, I’d point out that he said Berkshire was overvalued when the company issued its B class shares. (He said he wouldn’t buy the shares at that price, but I can’t find a convenient link.)

So given that Buffett has made public proclamations over the past 40 years that the market was overvalued and that the market is undervalued, it’s easier for me to believe that he’s simply giving his opinion than talking his book.

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By: Unsympathetic http://blogs.reuters.com/felix-salmon/2010/01/27/acquiring-companies-with-stock/comment-page-1/#comment-11577 Thu, 28 Jan 2010 16:12:10 +0000 http://blogs.reuters.com/felix-salmon/2010/01/27/acquiring-companies-with-stock/#comment-11577 Beer_numbers: How, exactly, does a detailed discussion about BRK’s multi-billion dollar exposure not make Buffett a market mouthpiece?

In your urge to correct, you made my point. Congratulations!

Buffett has billions of reasons to say whatever’s needed to inspire belief that the market is undervalued.

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By: Beer_numbers http://blogs.reuters.com/felix-salmon/2010/01/27/acquiring-companies-with-stock/comment-page-1/#comment-11557 Wed, 27 Jan 2010 16:54:18 +0000 http://blogs.reuters.com/felix-salmon/2010/01/27/acquiring-companies-with-stock/#comment-11557 Unsympathetic,
1. We’re pointing out that he said BRK was undervalued, not BNI.

2. I have no idea how you’re measuring the derivative bet, but you’re giving a bad connotation. As described in the 2008 annual report, the put contracts totaled $37.1 billion (at then-current exchange rates). If the 4 indices (S&P 500, FTSE 100, Euro Stoxx 50, Nikkei 500) each fell to 0, the company would lose $37.1 billion.

I think most people would agree with the incredibly unlikely probability of those 4 indices going to 0. Further, if they did all go to 0, I have a hard time imagining who would care whether Berkshire was bankrupt – every company on the planet would be bankrupt at that point.

A more realistic scenario described was if the 4 indices dropped by 25% from inception, BRK would owe $9 billion. Large, but not life-threatening.

At any rate, the equity puts were subsequently restructured to have a lower strike price and shorter maturity. The most recent 10-Q reports a net liability of $10.3 billion related to financial products (including equity index puts and and CDOs).

If you’re talking about the notional value (i.e., undiscounted maximum loss), it is $64.1 billion, which assumes maximum loss on all contracts. Still far less than BRKs current market value, and fairly irrelevant since the bulk of that ($38.592 billion) occurs in a state of the world in which everyone is bankrupt.

So I think you might be less informed than other commenters here.

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By: Cynic http://blogs.reuters.com/felix-salmon/2010/01/27/acquiring-companies-with-stock/comment-page-1/#comment-11552 Wed, 27 Jan 2010 15:40:49 +0000 http://blogs.reuters.com/felix-salmon/2010/01/27/acquiring-companies-with-stock/#comment-11552 Buffet didn’t go for an all-cash deal because he couldn’t afford it. The deal was worth some $26 billion; by the end of September, Berkshire’s cash reserves were down to about $23 billion. He has to come up with $16 billion in cash to pay for the deal, and he’s going to borrow half of it, which has costs of its own. Berkshire’s AAA credit rating is incredibly important to its ongoing operations, particularly in insurance. Buffet’s not about to jeopardize that. Even depleting cash reserves by $8 billion was enough to prompt the agencies to announce a review. Borrowing enough cash to make this deal work probably would have sparked a downgrade.

So once you rule out an all-cash deal, the question Buffet has to answer is this: if both stocks are undervalued, which of the two stocks is more greatly undervalued at present, compared to its longterm earnings potential? He clearly decided that the answer was Great Northern.

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