Buffett looks to succession, signals future growth problem

Tuesday, 3 March 2015 01:22 - - {{hitsCtrl.values.hits}}

Reuters: In his 50 years at the helm of Berkshire Hathaway Inc, Warren Buffett has transformed a failing textile company into a sprawling conglomerate that has vastly outperformed most of the rest of corporate America. But he now says: Do not expect a repeat of that outperformance in the next 50. In the 84-year-old’s annual shareholder letter released on Saturday, Buffett said Berkshire has grown so large – 751,000 times its original net worth per share – that the future pace of gains ‘will not come close’ to those of the past. “The numbers have become too big,” Buffett wrote. “I think Berkshire will outperform the average American company, but our advantage, if any, won’t be great.” Within 10 to 20 years, Buffett said, Berkshire’s girth could require whoever then runs the Omaha, Nebraska-based company to consider steps he

has resisted, such as paying dividends or conducting ‘massive’ share repurchases. Buffett, also addressing one of the more pressing topics at Berkshire, said he and his board of directors “believe we now have the right person to succeed me as CEO,” likely for a decade or more, and who in some respects “will do a better job than I am doing.” While Buffett did not name that person, Berkshire Vice Chairman Charlie Munger, 91, said Greg Abel and Ajit Jain, two top Buffett lieutenants, would be prime candidates. Abel, 52, runs Berkshire Hathaway Energy. Jain, 63, has been Buffett’s top insurance executive for three decades. A successor could also be female: Buffett said “gender should never decide who becomes CEO.” And Todd Combs and Ted Weschler, who run some Berkshire investments, “can be of particular help to the CEO in evaluating acquisitions,” he added. “You’ve got such good candidates,” said Thomas Russo, a principal at Gardner, Russo & Gardner, which invests 12% of its $ 10 billion of assets in Berkshire. “I think they’ll adopt a different capital structure approach, which will include a healthy, healthy large dividend.” Operating results miss estimates Buffett is preparing in May to celebrate 50 years of running Berkshire, whose market value is now $ 363 billion. On Saturday, Berkshire also reported a 17% drop in fourth-quarter profit, to $ 4.16 billion, or $ 2,529 per Class A share, from $ 4.99 billion, or $ 3,035, a year ago, as investment gains and results from insurance underwriting declined. Operating profit rose 5% to $ 3.96 billion, or $ 2,412 per share, from $ 3.78 billion, or $ 2,297. For all of 2014, profit rose 2% to $ 19.87 billion, while operating profit increased 9% to $ 16.55 billion. Revenue rose 7% $ 194.67 billion. Book value per share, which Buffett considers a good measure of Berkshire’s worth, rose 8.3% to $ 146,186 but lagged gains in the Standard & Poor’s 500 for the fifth time in six years.