Money Buffett Joins USG Shareholder Revolt as Berkshire Seeks Exit

02:01  15 april  2018
02:01  15 april  2018 Source:   bloomberg.com

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For more than a decade, Buffett 's Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) has held 100 per share mark in shareholders ' pre- exit speculation about how USG would be able to continue 5 Chains Joining Starbucks in the Pumpkin Spice Craze. 3 Stocks Warren Buffett Would Buy if He

Berkshire Hathaway, Buffett ’s holding company, currently has large positions. When USG exited its bankruptcy, it still had a .065 billion short-term debt as well as .439 billion in long-term debt. Buffett ’s Best Advice from the 2017 Shareholder Meeting. Recent Comments.

Warren Buffett © associated press Warren Buffett (Bloomberg) -- Berkshire Hathaway Inc. threw its weight behind a Knauf-led shareholder revolt against USG Corp.’s board, signaling Warren Buffett’s desire to exit as the largest investor in the wallboard maker.

Berkshire said it will heed a call by Germany’s Knauf for shareholders to vote against USG’s four board nominees, applying pressure on the company to reconsider a $5.9 billion acquisition bid. USG has spurned the offer of $42 a share, while Berkshire has said it would accept that amount if a sale is approved.

“This is a pretty decisive response,” Garik Shmois, an analyst with Longbow Research. “It sends a pretty clear signal that Berkshire is in favor of a sale.”

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But Buffett 's support for the Knauf proposal isn't necessarily a good gauge for other USG shareholders . While Berkshire has profited from its USG investment, the stock's performance and gypsum prices didn't live up to expectations.

Warren Buffett ’s Berkshire Hathaway Inc. officially became the biggest shareholder of Bank of America Corp. on Tuesday, notching billions in gains on the bank’s recovery from the financial crisis. Join the conversation. Comment.

Other shareholders are likely to join Knauf and Berkshire, which owns 31 percent of USG, in the push for management to reach a deal, said Tim Wojs, an analyst with Robert W. Baird & Co. Knauf is the second-largest shareholder, with about a 10 percent stake.

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USG rose 2.4 percent to $40.77 at the close in New York after earlier advancing to as much as $41.45, the highest intraday price since August 2007. The shares closed at $33.51 on March 23, the last trading day before Berkshire made the acquisition talks public.

Knauf is the only clear potential buyer of USG, which means that if management fails to reach a deal, it risks having shares retreat to where they traded before the negotiations became known, Shmois said.

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Buffett 's Berkshire charts distinctive course in USG sale talks. The proposal by Berkshire , USG 's largest shareholder , to Knauf, its second largest, was unusual, structured as a six-month option contingent on Knauf buying the rest of USG .

Buffett 's Berkshire charts distinctive course in USG sale talks. The proposal by Berkshire , USG 's largest shareholder , to Knauf, its second largest, was unusual, structured as a six-month option contingent on Knauf buying the rest of USG .

“Knauf is pleased that Berkshire Hathaway has indicated that it will support our withhold campaign and reinforces that our offer presents an immediate, high-value and cash-certain monetization opportunity for all USG shareholders,” Ed Trissel, a representative for Knauf at Joele Frank, said in an emailed statement. USG said in its letter Thursday that its board remains open to the evaluation of any proposal to acquire USG.

Exit Opportunity

A deal would untangle Berkshire from what Buffett has called a “disappointing” investment. USG filed for bankruptcy protection in 2001 under the weight of asbestos litigation settlements, and emerged in 2006. Two years after that, it needed a Buffett bailout after the U.S. housing market imploded.

Buffett showed his pessimism last year at Berkshire’s annual meeting, when he lamented the slow recovery of the housing market, volatile wallboard prices and lingering asbestos issues. He also said overcapacity sometimes afflicts the wallboard industry.

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Writing in his 1996 letter to Berkshire Hathaway shareholders , Buffett said the May 1996 Class B offering was made "in response to the threatened creation of unit trusts that would have marketed themselves as Berkshire look-alikes."

Warren Buffett Shareholder Letters 1998-2010. 1957 Letter WARREN E. BUFFETT 5202 Underwood Ave. Shares in Berkshire Hathaway had been acquired since November 1962 on much the same line of In large part, companies obtain the shareholder constituency that they seek and deserve.

“It complicates it for USG because Buffett’s put a price on the table that he’s willing to sell at, and USG’s apparently not happy with that price,” said Greggory Warren, an analyst at Morningstar Inc.

Although Berkshire’s support of Knauf piles pressure on USG, the hurdle is high for the German company to make a hostile move. It’s too late to propose an alternative board slate and the nominees can become directors for a year even if they fail to win a majority of votes. For a hostile takeover, Knauf would need support from 80 percent of USG shareholders.

‘Wholly Inadequate’

Earlier this week, USG said Knauf’s bid “is wholly inadequate, opportunistic and does not reflect the intrinsic value of the company.” It reaffirmed its rejection of the offer Thursday in a letter to shareholders urging them to vote for the board slate, which was issued before Buffett’s statement.

Chief Executive Officer Jennifer Scanlon and Chairman Steven Leer took the helm in November 2016 as the manufacturer turned the corner on past financial struggles. At an investor day meeting in March, USG laid out a plan for factory automation and new products. The company said the moves would boost profit margins and push free cash flow to at least $450 million by 2020 -- more than double last year’s level.

Knauf now wants to swoop in and reap the benefit from the transformation, USG said in its letter.

“The reality is their proposal would prohibit all USG stockholders from sharing in the benefits of USG’s strategic plan, which positions the company to drive meaningful financial and operational improvements,” USG said.

There’s time before the May 9 shareholder meeting for an agreement to be reached, said Longbow’s Shmois.

“Now that Berkshire is on board with Knauf’s proposal, a small sweetener is what’s needed to get USG to sell," Shmois said. If it becomes clear that a majority of shareholders will vote against the board nominees, “I don’t think the USG board holds on for too much longer,” he said.


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