Warren Buffett doesn’t have psychic powers, and his investing strategy isn’t immune to market moves. Berkshire Hathaway’s portfolio of public blue-chip securities had fallen in value by roughly $80 billion in nominal terms by mid March, compared with the $248 billion in value listed for year-end 2019 when Buffett delivered its annual results in February.
A holding in Apple stock that was worth almost $80 billion at the recent market peak had declined by around a quarter, while investments in Bank of America and other financial firms including JPMorgan and Goldman Sachs were down sharply. Berkshire Hathaway also owns stock in US airlines such as American and United that may need state assistance, which could wipe out much of their value for shareholders.
But Buffett has always been a buy-and-hold investor, and in his recent investor letter he stressed both his long-term commitment to US stocks and the amount of money he has ready to deploy.
The 'float' from Berkshire Hathaway’s insurance operations is a proxy for the cash that Buffett can spend and stood at $129 billion at the end of 2019.
Even before the recent erosion in global share prices – and a potential opportunity for long-term gains – anticipation had been growing that Buffett would like to make a last big deal before a possible shift to concentrating on succession planning.
Buffett’s 90th birthday is in the summer and he is clearly thinking of his legacy. His recent shareholder letter gave details of how his will is designed to gradually disperse the value of his Berkshire Hathaway shares to charitable foundations without forced sales of holdings, for example.
The highest-profile trade done by Buffett in recent years was participation in the 2015 merger of Heinz and Kraft in partnership with private equity firm 3G. That has been a poor investment, and association with the simplistic cost-stripping tactics of 3G has not enhanced Buffett’s reputation as a steward of corporate value or decency towards workers.
A deal of a different type might appeal now.
Buffett has cordial relations with Michael Bloomberg and said he would happily vote for his fellow billionaire during Bloomberg’s recent ill-starred presidential campaign.
This has led to speculation that Berkshire Hathaway might be the buyer in the event of a sale of Bloomberg’s data and media firm (both companies declined to comment).
Bloomberg indicated that he would sell his company if he won the presidency, and he may still be inclined to divest, even if his road to the Oval Office has been closed off.
He has committed to backing Democratic candidates in the election later this year and may well answer a call to serve in a possible Biden administration next year, given that an air of emergency seems likely to endure until then. Bloomberg would certainly be an ideal candidate for Treasury Secretary, for example.
Michael Bloomberg's presidential race is over, but political ambitions may still fuel a drive to divest
Some other candidates for a purchase of his company Bloomberg LP might struggle to meet a purchase price that could be more than $50 billion, even in current circumstances.
A private equity consortium looking to copy the way Blackstone was able to flip its Thomson Reuters purchase would normally be expected to bid for Bloomberg.
Blackstone bought most of Thomson Reuters for $20 billion in 2018, rebranded the firm as Refinitiv, and announced a sale to the London Stock Exchange group a year later for $27 billion.
The deal has not yet obtained final regulatory approval, but LSE group continues to try to close the trade, which will represent a big gain for Blackstone and other investors.
Refinitiv’s revenue is around two thirds of Bloomberg’s roughly $10 billion of annual sales, but Bloomberg is better entrenched in areas such as messaging and has a much stronger brand (which was reinforced by the much-mocked choice of a new name for its competitor).
So there is a widespread assumption that Bloomberg should sell for at least twice the value of Refinitiv. That could require a bridge loan of $40 billion or more for a private equity bid, which would be a stretch at the moment.
A takeover of Bloomberg by an exchange such as CME group or Intercontinental would also be a challenge, given that they are valued at comparable levels to the potential target.
Bloomberg’s main appeal is its financial data and connectivity, so a purchase by a cash-rich technology firm such as Microsoft would also make sense.
But a sale to Berkshire Hathaway would not just offer a way for Michael Bloomberg to cash out and for Buffett to buy a profitable, firmly entrenched company when other potential bidders are constrained. It could also set the stage for a grand charitable gesture by the two principals.
Buffett helped to found the 'Giving Pledge' in 2010 along with Bill Gates – who will soon step down from the board of Microsoft, the firm he co-founded – and Melinda Gates.
Bloomberg was one of the first billionaires to sign up to a commitment to give away a majority of their wealth under the pledge.
The 10th anniversary of the signing of the pledge will be in August this year, which also marks Buffett’s 90th birthday.
If an arrangement for Berkshire Hathaway to buy Bloomberg LP was reached by that date, there could be a gathering of benign billionaires designed to showcase their devotion to charity, potentially with specific handouts in what seems likely to be a time of need for the regular populace.
In the meantime, Berkshire Hathaway will hold a virtual annual general meeting for shareholders and announce its first quarter results on May 2. Then by mid May – 45 days after the end of the current quarter – required regulatory filings will show whether Buffett has decided to take advantage of the current meltdown with more mundane purchases of depressed stocks.