Buffett’s $40 billion cash pile provides fuel for takeover

Berkshire’s Position

Berkshire has enough cash for a $15 billion acquisition, counting proceeds from Mars and commitments to buy businesses, the analysts wrote in a note on Oct. 4. Since then, Berkshire’s Marmon unit agreed to buy a beverage dispenser business from IMI Plc for $1.1 billion.

Buffett, 83, has passed on some opportunities to draw down his cash pile this year. Deals with Goldman Sachs and GE in 2008 enabled him to buy a combined $8 billion in the companies’ stock at below-market prices. Instead, he settled the contracts this month in cashless transactions that gave him smaller stakes.

Exercising his full option to buy Goldman Sachs shares would have made the holding one of the largest in Berkshire’s stock portfolio, which was valued at more than $100 billion at the end of June. Buffett has said he’d rather focus on his biggest equity investments: Wells Fargo & Co., International Business Machines Corp., American Express Co. and Coca-Cola Co.

Big Four

“Otherwise, we would have been putting a great many billions of dollars in,” he said of Goldman Sachs in the interview with Liu. “That’s not an investment that we anticipate being in our big four, but it’s an investment we’re happy to have.”

The wind-down of Buffett’s crisis-era wagers has put a dent in investment income. Mars repaid bonds that carried an 11.45% coupon, and Goldman Sachs and GE each paid 10% dividends on the funds Buffett provided. Both companies redeemed Berkshire’s stake in 2011.

The Heinz purchase replaces some of that revenue. In addition to getting half the equity in the world’s largest ketchup maker, Berkshire invested $8 billion to get preferred shares that pay $720 million in dividends a year.

Berkshire Class A shares slipped 0.5% to $173,467 at 10:18 a.m. in New York. They have gained 29% this year, outpacing the 23% advance by the Standard & Poor’s 500 Index.

Buffett’s firm has more than 80 units that operate airplanes and power plants, manufacture bricks and chemicals, and sell products from chocolate to running shoes. Together, they helped generate a record $9.4 billion profit in the first six months of the year.

“The cash-flow generation at Berkshire right now is immense,” said Meyer Shields, an analyst at Keefe, Bruyette & Woods. “Eventually, there will be something to buy, and he’ll have the cash on hand to buy it.”

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