Buffett’s $111 Billion Cash Pile Intensifies Buyback Debate

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Warren Buffett’s Berkshire Hathaway Inc. gave him more leeway to make stock buybacks last month. Now, after the company said its cash pile has swelled to $111 billion, some investors are wondering when they might reap the benefits.

Berkshire’s second-quarter results released Saturday didn’t detail how many shares it was willing to repurchase, or at what price. But investors do know that the window is open: Last month, the company said it wouldn’t initiate buybacks until second-quarter earnings were made public.

The catch for some analysts is that the strength of the quarterly performance could make the shares too expensive. Berkshire’s Class A shares rose 3 percent to $313,700 at 9:53 a.m. Monday in New York. Under the buyback plan, both Buffett, who’s chairman and chief executive officer, and Vice Chairman Charles Munger have to find the price “below Berkshire’s intrinsic value, conservatively determined,” the company said last month.

“The market believes they have the willingness and the ability to buy back stock,” Jim Shanahan, an analyst at Edward Jones, said in a phone interview. “It’s possible that the stock just moves higher and the buyback opportunity proves fleeting.”

Growing Stockpile

Berkshire’s cash climbed to $111 billion at the end of the second quarter

Source: Company filings

Buffett has historically favored investing in companies and snapping up businesses such as railroads and insurers to expand his Omaha, Nebraska-based conglomerate. But prices for some businesses reached all-time highs last year and created a barrier for “virtually all deals” that Berkshire reviewed, Buffett said February in a letter to shareholders.

Cash Mountain

At the same time, his war chest is far higher than he wants, even as Berkshire plows money into holdings such as Apple Inc. Berkshire bought $6.1 billion of equities in the second quarter, while selling or redeeming $4.77 billion, according to regulatory filings. The company’s stake in Apple rose to $47.2 billion at the end of June, up from $40.7 billion at March 31, the filings show.

“Even with buying a huge position in Apple, he’s having a hard time deploying that cash,” said Bill Smead, who oversees about $2.2 billion, including Berkshire shares, at Smead Capital Management.

Buffett has repurchased shares before, agreeing in 2012 to buy back some stock from the estate of a longtime shareholder. Under Berkshire’s previous buyback program, the company couldn’t pay more than a 20 percent premium over book value for shares. Buffett has used book value as a “rough” measure of the company’s intrinsic value, even though he says it understates the value. The new program eliminates that cap.

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