Buffett’s Cash Pile: We Put Forth a Takeover Idea

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Berkshire Hathaway (BRK-B) is shelling out $2.05 billion to purchase the remaining 20% of Israeli-based industrial tool manufacturer IMC International Metalworking Companies. In 2006 Berkshire Hathaway paid $5 billion for its initial 80% stake in the global manufacturer that includes the Iscar line.

The deal barely rates as a baby elephant for Warren Buffett and Charlie Munger. That $2 billion is less than one quarter’s worth of pre-tax earnings spit out by what Buffett has dubbed the company’s “powerhouse 5” subsidiaries: BNSF, Iscar, Lubrizol, Marmon Group and MidAmerican Energy. In 2012 that mighty quintet generated $10.1 billion in pre-tax earnings.

As the chart below shows, Berkshire Hathaway entered the year with a groaning pile of cash.

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BRK.B Cash and Equivalents Chart

Combine this $2 billion transaction with the $12 billion Berkshire Hathaway will be spending in the Heinz take-out announced earlier in the year, and that still leaves about $35 billion in cash, even before adding back whatever after-tax earnings the subsidiaries generated in the first quarter. Buffett has stated he considers $20 billion in cash to be his permanent safety cushion, so at a minimum there is still $15 billion available for deals.

As Buffett wrote in this year’s shareholder letter, “Though large transactions of the BNSF kind will be rare, there are still some whales in the ocean.” No doubt the fishing continues for the master capital allocator drowning in cash. One interesting possibility -- and it’s just that -- is DaVita HealthCare Partners (DVA). Berkshire has been buying up shares for the past two years; with a 13% stake in the company Berkshire Hathaway is now the largest shareholder in the operator of kidney dialysis treatment centers. With a $12.62 billion market cap, DaVita would be a whale of a deal.

Carla Fried, a senior contributing editor at ycharts.com, has covered investing for more than 25 years. Her work appears in The New York Times, Bloomberg.com and Money Magazine. She can be reached at editor@ycharts.com.


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