Warren Buffett’s Berkshire Hathaway Inc. climbed to a record (2FA:US) closing price as the billionaire joined with 3G Capital in a $23 billion deal for the ketchup maker HJ Heinz Co.
Class A shares rose about 1.1 percent to $149,310 at 4 p.m. in New York. That’s more than double their value in March 2009 when plunging equity markets dragged down the value of the Omaha, Nebraska-based company’s stock portfolio and a deepening U.S. recession hurt results at housing, retail and manufacturing units.
Buffett, the 82-year-old chairman and chief executive officer, expanded Berkshire through the downturn using its cash hoard (2FA:US) to make investments as other sources of liquidity dried up. In the deal announced today, Berkshire will get more than $4 billion in equity in Pittsburgh-based Heinz and a preferred stake of $8 billion paying a 9 percent annual dividend. The transaction is valued at about $28 billion including assumption of debt.
As the stock “languished for the past three or four years, the question was, ‘Was it a balloon losing its helium, or was it a coiled spring?’” said Tom Russo, a partner at Gardner Russo & Gardner, who oversees more than $5 billion including shares of Buffett’s firm. “It’s always felt to me like a coiled spring,” he said. “The company has built and compressed more value behind each share.”
Since mid-2008, Buffett plowed $13 billion into Goldman Sachs Group Inc., General Electric Co. (GE:US) and Bank of America Corp. for preferred stakes and warrants. He also completed two of his largest acquisitions, buying chemical maker Lubrizol Corp. and railroad Burlington Northern Santa Fe.
Book value, a measure of assets minus liabilities, surged to $111,718 a share on Sept. 30 from about $77,600 four years earlier. Buffett, Berkshire’s largest shareholder, has said the metric is a useful gauge of how much the firm is worth.
Buffett and Vice Chairman Charles Munger signaled that they think the firm was undervalued when Berkshire said in December it bought back $1.2 billion in stock from a longtime investor’s estate for $131,000 a share. The company also raised the threshold at which it is willing to repurchase stock.
“If you run any business for a long period of time there are going to be times when it’s overvalued and times when it’s undervalued,” Buffett said at Berkshire’s annual shareholder meeting in May. “The beauty of stocks is that they do sell at silly prices from time to time, and that’s how Charlie and I have gotten rich.”
Results at Berkshire’s operating units have been improving. Buffett’s deal for Burlington Northern, which he called an “all-in wager” on the U.S. economy, has generated more than $7 billion in dividends for Buffett’s firm since the February 2010 purchase as it hauled more freight.
“Berkshire is basically a play on the U.S. economy,” said David Winters, CEO of Wintergreen Advisers LLC, which oversees Berkshire shares. “As people have had a little more faith in the U.S. economy, they’ve had faith in revaluing Berkshire.”
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