ThorntonO'glove And Tom Russo Debate Breaking Up Berkshire HathawayVW Staff
Thornton L. O’glove, “Quality of Earnings” author, makes the case for breaking up Berkshire Hathaway’s company to unlock more value for shareholders. Tom Russo, Gardner, Russo and Gardner LLC, strongly disagrees. Dream on,” says Warren Buffett. But noted investor Ted O’Glove contends it would be a windfall for investors.
moment. welcome to you both. ted, you are not talking about breaking in two. you are talking aboupinning out 27 companies? no. there are 77 operating companies. most of them can be spun off. and within them, you would have spin-offs of spin-offs. for example, he owns 50% of heinz. heinz easily could spin off six or eight of its divisions. you also have the marmon group with 160 subsidiaries. there are nine different areas. you can have probably 12 marman groups. buried in mid american pipeline, is america’s largest home brokerage unit. i don’t know why it is the mid mesh pipeline. that of course obviously could trade on its own. all these companies have world class management. that’s why they were bought by warren buffett. they were doing very well on their own before. they do very well on their own now. if you look at the end report, warren buffett unwittingly makes a great case for doing this. he raves about the management. he says i leave them to the point of abdication. i repeat, i leave them alone to the point of abdication. he has no general council. no resources director. the new york times recently pointed this out. they said it is almost unparalleled. but i would agree, the managers are so good. as far as acquisitions, with buffett and hmonger do, they make acquisitions and investments. these corporations were making acquisitions on their own before. yes, okay. let me just have tom rebut. because tom, ted is saying that if buffett were to announce this, the shares would double immediately. kelly, it doesn’t really matter. what you would sacrifice is the ability for the business to internally re-invest. there are two things at risk. the internal re-investment of the cash flow for someone may have spun off has purchased without tax the purchase of dozens of other companies. tax-free re-investment is terribly valuable and if you look at the investments that are going forward, the big ones, whether from the big three divisions or from m an a or from todd and ted’s management of the portfolios, we need to keep the capital at work internally. the second reason is, if you split up or broke up businesses from birkshire, we’d restrict the appeal of the company to those business sellers who want businesses that they built to go into birkshire where they could be well cared for and they don’t run the risk of being broken up. so now you would restrict the future. now the fact of the matter is, there are two questions. one is that birkshire has millions of dollars of cash flow a month that they have to deploy. if it is too much they can address that through dividends or through share buyback. the second thing is, there are 300,000 employees at birkshire now. it may be too big to manage. however, we can discover whether it’s manageable or not when — years later. we don’t need to double the price of birkshire today when within the company we build value. if it turns out that we need to take cities, do it later when the shares go into the gates foundation an the effects of whatever they do will not be taxable.