The story behind Berkshire Hathaway's low-priced B shares
Warren Buffett never liked the idea of splitting Berkshire's stock. But in a 'reluctant response,' he did it.
Berkshire Hathaway's stock trades in two classes on the New York Stock Exchange: Class A (BRK-A) and Class B (BRK-B).
When Buffett took over the company in 1964, there was just one class of shares: Class A. Back then, the share price was around $19.
As the price of Berkshire’s A-share ballooned, Buffett had said he was content with its highly-valued, single-class of stock and vowed never to let it split, as he sought to attract long-term investors that were not worried about day-to-day fluctuations.
“I don’t want anybody buying Berkshire thinking that they can make a lot of money fast,” Warren Buffett told Alice Schroeder in her biography The Snowball.
The decision to issue lower-priced shares
However, by 1995 Class A shares had risen over $22,000 per share, creating market demand for higher accessibility and liquidity. In May 1996, Berkshire issued 517,500 shares of B shares, also known as “the Baby B’s” which were worth 1/30th of a Class A share and had 1/10,000th of the voting rights of a Class A shareholder.
Berkshire called it a “reluctant response” aimed at discouraging the development of unit investment trusts that had been formed to let small investors have a piece of Berkshire’s success. Class B shares allowed average investors to include the company in their portfolios instead of having to go through these trusts.
In his 1996 letter, Buffett wrote, "As I have told you before, we made this sale in response to the threatened creation of unit trusts that would have marketed themselves as Berkshire look-alikes. In the process, they would have used our past, and definitely nonrepeatable, record to entice naive small investors and would have charged these innocents high fees and commissions."
Buffett worried that if the stock was left in the hands of unit trusts, the company “would have been burdened with both hundreds of thousands of unhappy, indirect owners (trustholders, that is) and a stained reputation.”
The holder of a Class A share can convert into Class B shares, but the conversion privilege does not work in the opposite direction. Both Class A and B stockholders can attend the Berkshire Hathaway Annual Meeting.
The decision to split the lower-priced shares
In 2010, Buffett split the B shares 50-for-1 when he used Berkshire stock to help pay for the $27 billion acquisition of railroad Burlington Northern. B shares now have value 1/1,500th of a share of Class A common stock. The voting rights have stayed the same at 1/10,000th of a Class A share.
As of February 17, there were 807,811 Class A shares outstanding and 1.25 billion Class B shares outstanding.
Yahoo will be livestreaming the Berkshire Hathaway Conference on April 30 for the first time here: www.yahoofinance.com/brklivestream.
