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Berkshire Hathaway Inc. Message Board

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  • PT_stkman PT_stkman Jul 4, 1998 11:02 PM Flag

    Need some advise

    Can I purchase shares of GEN RE and then have them converted to BRK.b ????

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    • Each General Re share can be traded in for either
      0.0035 BRK Class A shares or 0.105 BRK Class B shares.
      These exchange ratios are set in stone, even if the
      price of Class A or Class B shares tanks in the future.
      Right now, BRK Class B shares are $2,588 per share.
      0.105 of $2,588 is $271.74. This is above General Re's
      current share price of $256. So you could easily make a
      guaranteed $15-16 per General Re share by buying General Re
      shares right now and waiting for the merger to be
      finalized in the fourth quarter. You could make more than
      $15-16 per share if BRK Class B shares continue to rise
      for the rest of the year. For instance, if Class B
      shares hit $3,000 a share in the fourth quarter (and if
      you bought General Re now at $256 per share), then
      each General Re share would be valued at $3,000 *
      0.105 = $315 per share -- but you'd have only paid $256
      for it.

      Buffett obviously believes General Re
      is undervalued, despite reports in the media that he
      is paying a "premium" for General Re. While it's
      true that paying 0.105 a BRK B share for a General Re
      share results in Buffett's paying around $270-275 for
      each General Re share, which was selling at around
      $225 before the merger announcement, Buffett is still
      paying only $20-22 billion for $24 billion in General
      Re's "float." It's like Buffett is paying out $20-22
      billion but getting $24 billion automatically in return
      -- a profit of $2-4 billion that he can immediately
      pocket. It's not everyday someone just gives you $2-4
      billion for free. To Buffett, being able to use money is
      as good as the money itself. In no time, Buffett
      will be able to use that float to generate 24% annual
      returns as he's been doing for the last 40 years. I
      personally am buying American Express big-time because
      Buffett recently petitioned and received permission from
      the Federal Reserve to increase his AXP stake from
      10.6% to an astonishing 17%.

      • 1 Reply to Novalis_97
      • I think I understand float, but some of your math
        makes me think, maybe not. So help me:

        assume you have just two items on the balance sheet -
        $20 billion in cash (float) and $18 billion in
        obligations to policyholders. I say the equity is $2 billion
        and you had better not get excited about buying $20
        billion in float for "only" $15 billion. There are simply
        cheaper ways to get the money to use for

        Not that this is what is being done with BRK and
        General Re, just that you can't take the amount of the
        float in isolation.

        If there is anyone out
        there with a good accounting background who has
        crunched the numbers on this merger, I'm sure your
        analysis would be welcomed on this board.

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