THE DEAL OF BILLIONAIRE WARREN BUFFETT’S CAREER – A US$100BIL TAKEOVER!

Warren Buffett, chairman of Berkshire Hathaway Inc., speaks during an event marking Business Wire's expansion into Canada in Toronto, Ontario, Canada, on Wednesday, Feb. 6, 2008. Buffett said a credit crunch isn't under way and he forecast that the dollar's value is likely to decline. Photographer: Norm Betts/Bloomberg News

SEATTLE: Warren Buffett’s career is filled with splashy takeovers that cost billions – as in US$10bil or US$20bil or US$30bil.

But US$100bil? Even for Buffett, that’d be an awful lot of money. Yet, that is now the buzz among some investors, analysts and Buffett fans.
There are no signs that anything is on the immediate horizon, but they can’t resist fixating on the record amount of cash piling up at Buffett’s Berkshire Hathaway Inc – conceivably enough to manage a transaction with a 12-figure price tag.

That would put a takeover of, say, Nike Inc or Costco Wholesale Corp in range, to cite examples of companies that might appeal to Buffett’s tastes.

“A US$100bil deal seems possible” given the cash on hand, said Richard Cook, an investment manager in Birmingham, Alabama, whose fund holds Berkshire shares.

It’s a tantalising proposition as thousands of investors prepare to gather this weekend for the company’s annual meeting in Omaha, Nebraska. Even at 86, Buffett is eager to show his fans that he’s far from done building his empire – and that he can top his largest takeover, the US$34bil purchase of railroad Burlington Northern Santa Fe in 2010.

Most of all, Buffett wants to own companies with strong competitive advantages that have earnings he can predict far into the future. That’s why firms like Nike or Costco might theoretically appeal, assuming prices are attractive. To be sure, neither has indicated it’s actually for sale – or that it would play along if a deep-pocketed buyer makes a bid.

Buffett certainly has the war chest to do so. At the end of December, Berkshire had US$86.4bil in cash, earning barely anything. That could balloon to US$100bil by mid-year as profits roll in from its dozens of subsidiaries, like auto insurer Geico and BNSF, said Jim Shanahan, an analyst at Edward Jones. And even though Buffett prefers to set aside at least US$20bil for a rainy day, it’s still “a lot of cash to be sitting on,” Shanahan said. Buffett didn’t immediately return a message seeking comment.

The billionaire has plenty of other pockets to dig into, as well. He’s indicated he could sell portions of Berkshire’s stock portfolio to fund a deal. Some of those investments, including a US$13bil holding in International Business Machines Corp, could be liquidated without incurring much of a tax bill.

Then there’s debt. Buffett borrowed almost a third of the sum required for last year’s US$33bil deal for manufacturer Precision Castparts Corp. With interest rates so low, that could be a particularly attractive option.

A large deal could also be partially funded using Berkshire’s own stock, though Buffett is reluctant to dilute his shareholders. (He recently quipped he’d “rather prep for a colonoscopy than issue Berkshire shares.”)

What’s possible is not necessarily probable, of course. For starters, there aren’t that many companies that are worth US$100bil and fewer still that might interest Buffett. He’s said, for instance, that he wouldn’t want to own a bank because of the regulation that would come along with it.

Another thing can be pretty much counted out: a hostile bid. He has said he doesn’t chase deals. He recently pulled an offer with Kraft Heinz Co for Unilever – which has a market capitalisation of roughly $150 billion – because the consumer products giant deemed it unfriendly.

“If he were given an interesting opportunity to spend US$100bil, he’d find the money,” said Steve Wallman, a longtime Berkshire shareholder and investor in Middleton, Wisconsin.

“The more important factor is what’s available.”

– Bloomberg

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