【Bloomberg.com 2009-03-12】Buffett Resumes U.S. Takeover Hunt as Rivals Drop Out (UpdatBuffett Resumes U.S. Takeover Hunt as Rivals Drop Out (Update3)

Buffett Resumes U.S. Takeover Hunt as Rivals Drop Out (Update3)
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By Betty Liu and Erik Holm

March 12 (Bloomberg) -- Billionaire Warren Buffett, who took a four-country tour of Europe less than a year ago in search of takeover targets, now says buying opportunities are presenting themselves in the U.S.

With a smaller pot of money remaining to fund deals, prices waning and bidders dropping out, Buffett’s Berkshire Hathaway Inc. no longer needs to look overseas for acquisitions, Buffett said in a Bloomberg Television interview, portions of which will be broadcast today and tomorrow.

“The way things are going, there’s a lot of things that may be happening in the United States,” Buffett said. “The odds favor” a domestic deal for Omaha, Nebraska-based Berkshire, he said, while allowing that “I could get a call tomorrow about some company in the U.K. or Germany.”

The statement is a reversal for Buffett, who spent four days at press conferences and meetings in Switzerland, Germany, Spain and Italy last May to drum up potential buyouts when U.S. opportunities were scarce. With rival bidders cut off from funds by the credit crunch and benchmark stock indexes down more than 40 percent from a year ago, Buffett, 78, can use Berkshire’s $25.5 billion cash hoard to buy into companies almost uncontested at discount prices.

Buffett committed some of the cash in July to buy $3 billion of preferred shares of Dow Chemical Co., helping fund the takeover of Rohm & Haas Co. in a deal that will pay Berkshire 8.5 percent annually. He spent $8 billion on preferred shares of General Electric Co. and Goldman Sachs Group Inc. that pay 10 percent, selling a portion of Berkshire’s holdings in Johnson & Johnson, Procter & Gamble Co. and ConocoPhillips to fund the deals.

Acquiring Corporate Debt

Last month he agreed to buy convertible notes from Swiss Reinsurance Co. worth 3 billion Swiss francs ($2.6 billion), and has made smaller deals to buy debt in firms including motorcycle-maker Harley-Davidson Inc., luxury jeweler Tiffany & Co. and Sealed Air Corp., the maker of Bubble Wrap shipping products, commanding yields as high as 15 percent.

“Frankly, when we had $45 billion, the threshold wasn’t as high for the first deal as it would be subsequently,” Buffett said. “I’m open for business, but it’s got to be the best business in town.”

Since Berkshire’s Goldman Sachs investment was announced Sept. 23, the investment bank’s share price has fallen from $125.05 to $97.25. GE’s share price has fallen from $25.50 the day before the Oct. 1 deal announcement to $9.57 today, leaving warrants that were awarded to Berkshire as part of both agreements underwater. The strike price on the Goldman warrants is $115, and GE’s $22.25.

Wanted a ‘Kicker’

“I wanted a possible kicker,” he said, adding that he didn’t know if Berkshire would make money by exercising the warrants in either company. “I think the odds are reasonably good we do them. Maybe we’ll do it on one and not the other, but in the end I was satisfied with the preferred I was getting.”

Shares of Fairfield, Connecticut-based GE have plummeted on concerns the firm’s finance unit may need cash. GE cut its dividend for the first time since 1938 to save cash, and the company has announced plans to inject $15 billion into the finance unit to buffer against potential losses. GE and its finance arm lost its top-level AAA credit rating from Standard & Poor’s today.

“They’ve got the earnings power to work things through,” Buffett said. GE Chief Executive Officer Jeffrey Immelt is “a terrific manager that has a business that has lots of tough sledding ahead.”

Derivative Bets

Berkshire’s own stock has dropped 35 percent in the past year, compared with the 43 percent drop in the S&P 500 Index. Berkshire shares, the most expensive on the New York Stock Exchange, rose $2,000, or 2.4 percent, to $85,700 at 4:15 p.m. in composite trading.

The shares have declined on concern that Buffett’s bets on derivatives will hurt Berkshire’s profit. The firm is backing contracts tied to corporate junk bonds, municipal debt and the performance of stock indexes on three continents, with liabilities of more than $14 billion as of Dec. 31. Berkshire will sell more of the derivatives, which have brought in more than $8 billion, Buffett said.

“Oh, we’ll continue,” he said. “We do anything that I think I understand and where I think that the odds strongly favor making money, which doesn’t mean you make money every time.”

Berkshire Buyback

Buffett, who has never split the stock or paid a dividend, said it’s “always a possibility” that Berkshire would repurchase its own shares.

“If we were ever going to buy our own stock, I would write to shareholders,” Buffett said. “We would only do it if we thought we were buying it for less than it was worth, and I’d want them to know ahead of time, so we won’t be doing it tomorrow or next week. You can’t rule it out.”

Buffett formally notified shareholders Berkshire would buy back stock once during his 44-year tenure as CEO, in March 2000. Before he bought any, the shares rose 24 percent as investors interpreted the move to mean the stock was undervalued, former Morgan Stanley analyst Alice Schroeder wrote in her Buffett biography, “The Snowball.”

Buffett said Berkshire’s Geico auto-insurance subsidiary is breaking sales records as customers switch coverage to save money.

Seeking a Better Deal

“It’s not because we’re advertising more, and it’s not because our price differential compared to our competitors has changed,” Buffett said. “It’s something in the American psyche, where the guy who didn’t care about saving a hundred bucks on his auto insurance a year ago is coming to us now.”

Other Berkshire units that sell carpeting, bricks and real estate haven’t fared as well. Profit at the firm’s furniture stores, jewelry shops and candy business declined 34 percent to $91 million in the fourth quarter.

“The change in the American consumer’s behavior in the last six months is like nothing that’s ever happened,” Buffett said. “They won’t go in our jewelry stores. They’ve got the money, but when Valentine’s comes along, they think: ‘I still love my wife, you know, but I’ll just tell her this year.’”

(Portions of the interview with Buffett will be broadcast today and tomorrow on Bloomberg Television and at BTV .)

To contact the reporters on this story: Betty Liu in New York at bliu17@bloomberg.net; Erik Holm in New York at eholm2@bloomberg.net.

Last Updated: March 12, 2009 16:26 EDT