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Feb 24, 2018

Buffett's Berkshire has $116 billion to spend on a deal, but the investor can't find anything cheap enough

    • Warren Buffett's annual letter to Berkshire Hathaway shareholders was released Saturday.
    • At year-end last year, Berkshire Hathaway had $116 billion in cash and short-term Treasury bills compared to $86.4 billion at the end of 2016.
    • "This extraordinary liquidity earns only a pittance and is far beyond the level Charlie and I wish Berkshire to have. Our smiles will broaden when we have redeployed Berkshire's excess funds into more productive assets," Warren Buffett writes.
    • The letter also showed Berkshire gained $29 billion last year related to the tax cut.




    Warren Buffett, Chairman and CEO of Berkshire Hathaway.
    David A. Grogan | CNBC
    Warren Buffett, Chairman and CEO of Berkshire Hathaway.
    Warren Buffett's Berkshire Hathaway is itching to do a massive acquisition, but is having a difficult time due to elevated valuations.
    The Oracle of Omaha explained his buying criteria for deals in his 2017 annual letter to shareholders released on Saturday.
    "In our search for new stand-alone businesses, the key qualities we seek are durable competitive strengths; able and high-grade management; good returns on the net tangible assets required to operate the business; opportunities for internal growth at attractive returns; and, finally, a sensible purchase price," he wrote. "That last requirement proved a barrier to virtually all deals we reviewed in 2017, as prices for decent, but far from spectacular, businesses hit an all-time high."
    At year-end last year Berkshire Hathaway had $116 billion in cash and short-term Treasury bills compared to $86.4 billion at the end of 2016, the letter revealed.
    "Berkshire's goal is to substantially increase the earnings of its non-insurance group. For that to happen, we will need to make one or more huge acquisitions. We certainly have the resources to do so," he wrote. "This extraordinary liquidity earns only a pittance and is far beyond the level Charlie and I wish Berkshire to have. Our smiles will broaden when we have redeployed Berkshire's excess funds into more productive assets."
    Buffett said Berkshire Hathaway is a big beneficiary of corporate tax reform. The tax overhaul, which President Donald Trump signed into law in December, lowers the corporate tax rate to 21 percent from 35 percent.
    For 2017 the company had a $65 billion gain in its net worth or increase in its shareholder equity.
    "The $65 billion gain is nonetheless real – rest assured of that. But only $36 billion came from Berkshire's operations," he wrote. "The remaining $29 billion was delivered to us in December when Congress rewrote the U.S. Tax Code."
    Buffett, 87, added in the letter he will still handle the big acquisition decisions for the company, along with Charlie Munger, 94.
    "I've saved the best for last. Early in 2018, Berkshire's board elected Ajit Jain and Greg Abel as directors of Berkshire and also designated each as Vice Chairman. Ajit is now responsible for insurance operations, and Greg oversees the rest of our businesses," he wrote. "Charlie and I will focus on investments and capital allocation."
    That mention at the end of the letter was the extent of Buffett's discussion of a succession plan he put in place in January.