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

Warren Buffett (Source: Bloomberg) Warren Buffett (Source: Bloomberg)

Warren Buffett, who aims to have $20 billion in cash at his Berkshire Hathaway Inc., isn’t investing fast enough to keep money from piling up.

Berkshire will post a $4.3 billion third-quarter profit, according to an estimate from Barclays Plc, adding to a cash hoard of $35.7 billion at the end of June. Buffett also got back $4.4 billion this month that was lent to help Mars Inc. buy Wm. Wrigley Jr. Co. in 2008.

Even in a year in which the company has struck some of its largest deals and accelerated capital spending, Buffett still needs to find acquisitions. Omaha, Nebraska-based Berkshire has already invested $12.3 billion on a takeover of HJ Heinz Co., committed $5.6 billion to buy a Nevada electric utility and made smaller purchases through subsidiaries since Dec. 31.

“It’s a high-class problem,” said Cliff Gallant, an analyst at Nomura Holdings Inc. “The year’s not up. I wouldn’t be surprised to see another deal of some sort.”

Buffett, Berkshire’s chairman and chief executive officer for more than four decades, has said he likes to keep $20 billion on hand should the reinsurance operations need to pay large claims. Having additional cash allows him to make big investments when others are fearful.

Buffett’s 2008 deals with companies including Mars, Dow Chemical Co., Goldman Sachs Group Inc. and General Electric Co. allowed him to put large amounts of money to work, earn high interest rates and, in some cases, get warrants to buy equity.

‘Too Much’

The cash pile climbed as high as $49.1 billion on March 31, before falling in the second quarter after the Heinz deal. Berkshire had about $40 billion on hand, Buffett told CNBC on Oct. 16. He didn’t return a message seeking comment about his plans for the funds.

“It’s too much any time we have more than $20 billion,” he said in a May interview with Bloomberg Television’s Betty Liu. “But that doesn’t mean we’re going to spend it just because we have it.”

Still, keeping ample liquidity has come at a price. Most of Berkshire’s cash is in Treasuries, which have generated little interest income as the Federal Reserve kept rates low to help stimulate the economy.

“The $20 billion-plus of cash-equivalent assets that we customarily hold is earning a pittance at present,” Buffett wrote in a 2010 letter to investors. “But we sleep well.”

Barclays estimated that Berkshire’s earnings will climb about 9% in the three months ended Sept. 30 from a year earlier. The company will benefit from higher profit at railroad Burlington Northern Santa Fe and insurance units, analysts led by Jay Gelb wrote in an Oct. 2 report. Buffett may announce results as soon as tomorrow.

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