By Katherine Chiglinsky and Noah BuhayarBerkshire Hathaway Inc.
shareholders may soon get their hands on part of a $109 billion mountain of cash thats bedeviling Warren Buffett.The companys board announced Tuesday its removing a cap on stock buybacks, giving the Berkshire chairman and chief executive officer greater leeway to parcel out profits, rather than hunt for more acquisitions.
Buffett and Vice Chairman Charlie Munger can now make repurchases whenever they both believe the price is below Berkshires intrinsic value, conservatively determined, the company said.
The stock rose in late trading.Its a tectonic shift for Berkshire, which for decades has favored Buffetts strategy of acquiring well-managed companies and stitching them into an ever-growing conglomerate.
But in recent years, the massive company has turned out profit faster than it could redeploy the money.
The war chest swelled past $100 billion last year, prompting some die-hard investors to wonder whether Buffett should just pay some out.
Now he can.Its a game changer, said David Rolfe, the chief investment officer at Wedgewood Partners, an investment manager that oversees $4 billion, including Berkshire shares.
Buffett could afford to spend in the low tens of billions of dollars on buybacks every year, Rolfe estimated.Berkshires Class B shares climbed 1.5 percent to $193.28 at 7:40 p.m.
in New York.The firms earlier repurchase program stipulated the price paid couldnt be more than 20 percent above the current book value of shares.
Book value is a measure of assets minus liabilities, which Buffett has called a useful -- though understated -- proxy of his conglomerates intrinsic value, or what its really worth.Buffett, 87, began a buyback program in 2011 after shunning repurchases for four decades.
But opportunities to acquire shares remained scarce as the company initially prohibited purchases at stock prices above 110 percent of book value.
It raised the limit to 120 percent in December 2012.
Since then, some investors have viewed the threshold as a floor under the stock -- keeping the price out of reach for buybacks.Buffett had been toying with the idea of loosening the rules further, saying in a February interview with CNBC that the company might have to tweak the equation.
Hes emphasized that he generally prefers to repurchase stock than issue a dividend.Even under the changes announced Tuesday, Berkshire said it wont repurchase stock if doing so would reduce the value of its cash-like holdings below $20 billion.
One of the companys main businesses is insurance, which can incur large claims costs.Were never going to do anything that we think is harmful to continuing shareholders.
So, we think the stock is intrinsically worth X, and we would have to pay some multiple --- some modest multiple, even above that --- to repurchase shares, Buffett said in May at Omaha, Nebraska-based Berkshires annual shareholder meeting.Overdue DecisionAside from acquisitions, Berkshire also invests in shares of other companies.
Its portfolio includes tens of billions of dollars in Apple Inc., Wells Fargo Co.
and Coca-Cola Co.
But a long bull market has made it harder to find bargains.Lifting the cap is overdue, Meyer Shields, an analyst at Keefe Bruyette Woods Inc., said in an interview.
Berkshires book value hasnt been as useful a measure of the companys intrinsic value as Buffett has pursued more deals for operating companies, according to Shields.This is something thats been talked about for years, Shields said.
This ever-growing cash pile is now overwhelming.