2020: Will activists breakup Berkshire?
BECKY QUICK: OK, thanks. And you mentioned a few minutes ago that you’re very concerned about Berkshire’s long-term health, too. This question came in from Drew Estes in Atlanta, Georgia, who says, “There’s already speculation of a post-Buffett breakup of Berkshire, and given the sway carried by modern activists, the speculation should be taken seriously.
“Many long-term owners see the folly in this view. A $25 billion auxiliary earnings stream provides a lot of flexibility when investing insurance float.
“On our, and your estate’s, behalf, could you more forcefully make the case of maintaining Berkshire’s current architecture? If you don’t, that responsibility will fall on an unknown set of shoulders with far less credibility>′
WARREN BUFFETT: Well, if you were to — if you were to sell Berkshire’s various subsidiaries, you would incur a very significant amount of tax at the corporate level before anything was distributed to the shareholders.
You can spin off a given one, or something of the sort. But the ability to break up a diverse company without tax implications — there was there was something called the General Utilities Doctrine that prevailed in various ways up until 1986.
And a lot of people seem to comment based on the fact that that didn’t happen in 1986. (Laughs)
And there’s imaginative ways where people try to avoid taxes, and can do it in some cases, on certain types of transactions. If you were to break up Berkshire, that would be one factor.
But the interaction of being able to move capital around, in terms of being able to do things in insurance that we couldn’t do unless there were the backup earnings, and capital employed in the other entities — there’s enormous advantages in capital deployment within the place, so I —
There is not a big discount to breakup value embodied in Berkshire’s price. And the situation actually is that although all my Berkshire shares — every share — will be given to charities pursuant to a plan I developed back 14 years ago and followed ever since, and will continue following this July — I’ll be giving away 3 billion or so worth of the stock and — but it’s all — it still involves a big voting percentage that — including other people’s that still remain in the picture, aside even from the Buffett family — it isn’t going to happen.
Now, I will tell you everybody in the world will come around and propose something, and say it’s wonderful for shareholders, and by the way, it involves huge fees. I mean— (laughs) — you do not — you do not get impartial advice from Wall Street — (laughs) — when there’s (an) enormous amount of fees possible from one action, and no fees applicable from another action.
But you can be sure I’ve thought about it. And I would say that you can you can count on Berkshire’s present posture being continued for a long time.
I can’t tell you what’s going to happen a hundred years from now. And I can’t tell you exactly what would happen, for example, if certain ideas, in terms of wealth taxes, changed, or taxes on foundations change. I mean, they could —
But my plan has been thought out and in place for a long time. And it not only ensures that the money that’s been made off Berkshire — all of it ends up going to various philanthropies staggered over time — but it also — it will keep the wolves away.
Greg, do you have any thoughts on that? (Laughs)
GREG ABEL: Well, I think the comment on the capital allocation is critical, that we have the ability to move the capital amongst the — be it the operating businesses or up to the insurance or down — with really no consequences to our shareholders. That’s the value driver, the unique structure of Berkshire, and it creates immense value, so — That’s all I would add, or second, I guess.