Berkshire Meeting: Buffett Says Little on Succession

TheStreet.com

OMAHA (TheStreet) -- Berkshire Hathaway CEO Warren Buffett gave no new hints about the company's succession plan during its annual shareholder meeting on Saturday.

Twice during the entertaining event, the 82-year old billionaire evaded direct questions seeking he announce a successor.

When asked by a shareholder about announcing a successor, Buffett did not disclose the name of Berkshire Hathaway's next CEO and, instead, reiterated comments that the company's board of directors has already been informed of a replacement.

Also see: Berkshire Hathaway Shareholder Meeting: Blog Recap

"It will be the same thing and you can count on that," Buffett said of Berkshire's culture after he leaves.

Other hot topics at the conglomerate's packed shareholder meeting included acquisitions, the global economy, the state of the banking industry and Federal Reserve policies.

Also see: Berkshire Toughens Stance on Derivatives of Mass Destruction

Buffett and Berkshire vice chairman Charles Munger provided plenty of colorful moments, including a disagreement on the state of the U.S. banking industry.

They both also gave only muted signs of excitement for Berkshire's push into international markets such as Europe and Asia.

"If you told us that we could only invest in the United States the rest of our lives, we would not view that as a huge hardship," Buffett said.

Also see: Buffett's Cherry Coke Walk & Talk

On Friday, Berkshire beat earnings expectations on strong performance from operating units such as BNSF Railways

"It was a benign quarter in insurance, but our other businesses did quite well," Buffett said of Berkshire's earnings at the shareholder meeting. "We have been very lucky that a lot of oil has been found close to our railroad tracks," he added, of BNSF earnings.

Buffett did a strong job portraying the performance of Berkshire's operating subsidiaries, for instance, BNSF Railways, according to William Smead, chief investment officer of Smead Capital.

At the meeting, Buffett and Munger appeared hesitant to project Berkshire's earnings in a faster growing economy said Smead. "I was surprised by the lack of the probabilities they laid out for an improving economy," he said.

Buffett also picked Seabreeze Partners President and Real Money Pro contributor Doug Kass to make the case for shorting shares of Berkshire Hathaway.

Kass pressed Buffett on issues such as succession, the ability to grow a company as big as Berkshire, and the firm's ability to quickly cut profitable deals with firms in need of capital.

"Doug Kass provided a little spice. Although being the devils advocate in that situation, it was an impossible role," Smead said. Kass "raised some interesting points and drew some good responses," he added.

In Berkshire's 2012 annual shareholder letter, Buffett lamented an underperformance of the firm's book value growth relative to the S&P 500, and even outlined a path towards a dividend.

On Saturday, Buffett reiterated comments made in his shareholder letter that Berkshire's book value growth may underperform the S&P 500 for the first time ever over a five-year period, if markets continue to rise.

"It won't totally discourage us," he said. "In the end, we have to do better than what you could earn from an index fund."

Despite his age, Buffett shows little sign of slowing, as evidenced by a recent deal to buy Heinz, the iconic ketchup maker.

If there was an elephant in the room in Omaha's CenturyLink Center beyond CEO succession, however, it was the roughly $12 billion in free cash flow and $35 billion in pro-forma cash Buffett and Berkshire wield for acquisitions.

Buffett and Munger gave little clarity on their appetite for acquisitions, noting they recently hired AIG executives to build out the company's commercial insurance business. Organic growth, Buffett seemed to say, is likely to win out over growth by acquisition in Berkshire's insurance business.

When asked by Bill Miller of Legg Mason whether Berkshire is interested in investing in the consolidating airline industry, Buffett and Munger dismissed the idea outright.

"Investors have poured their money into airlines and airline manufacturers for 100 years with terrible results," Buffett said.

Although both Buffett and Munger gave a fairly negative assessment of Europe's economic problems, it seemed that when it came to firing Berkshire's so-called "elephant guns" for M&A, the region may be a target.

"We would be delighted to buy a big business in Europe. We would pay in cash," Buffett said. "Europe is not going to go away, but, the European monetary union has a major flaw," the CEO added of the region's economic crisis.

In his first question as a short seller at Berkshire's meeting, Doug Kass asked Buffett whether the firm is paying a rich price for acquisitions and becoming more like an index fund that tracks overall markets.

"We have paid up for good businesses more than we would have 30 or 40 years ago," the Berkshire CEO replied. "We have now realized that paying up for an extraordinary business is not a mistake," he added.

The meeting, at times, covered highly charged political topics such as Fed policy, taxation, green energy and the government's debt dynamics in the wake of the financial crisis.

"The amount of stimulus provided in the last five years was quite appropriate given the panic that was the worst in my lifetime," Buffett said of the government's rising debt burdens.

A supporter of President Obama, Buffett struck a bi-partisan tone by acknowledging former President George Bush made tough decisions to combat the 2008 crisis. "We owe him a lot in that respect," Buffett said.

Buffett and Munger also provided sharply contrasting perspectives on the health of the U.S. banking system.

"I consider the banking system in the United States to be stronger than at any time in the last 25 years," Buffett said on Saturday. He reaffirmed confidence in Berkshire's top bank stock holdings such as Wells Fargo , U.S. Bancorp and M&T Bancorp .

"I do not worry about the banking system being the cause of the next bubble." Buffett said, when asked if Berkshire Hathaway was 'too big to fail.'

Munger, Berkshire's vice chairman, took a less sanguine tone in the shareholder meeting.

"I am a little less optimistic about the banking system long term," he said. Munger's concerns centered on the trading operations at the nation's largest banking conglomerates and appeared to raise support for financial sector firewalls such as the Volcker Rule, a piece of the 2010 Dodd Frank Act.

"We have a grossly swollen securities and derivatives market" Munger said, to audience applause.

A shareholder meeting that drew laughter, tough questioning and a fair amount of disagreement signaled continued verve by both Buffett and Munger to run Berkshire Hathaway.

With little new said on succession, shareholders will have to return next year.

-- Written by Antoine Gara.

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