Berkshire Hathaway in rare buyback; shares spike

Warren Buffett's conglomerate Berkshire Hathaway said it will launch a share buyback program, an unprecedented move from Buffett that comes after months of investor complaints that the stock is undervalued. Some long-time investors have said Berkshire shares were lately at their cheapest in a generation, and even analysts who were cautious on the stock acknowledged it was attractively priced. Yet Buffett has held his ground, preferring deals that increase margins and provide a return.
In his letter to shareholders last February, Buffett bragged that "not a dime of cash has left Berkshire for dividends or share repurchases during the past 40 years." But Berkshire said on Monday it was now willing to pay up to 10 percent more than book value for its stock.
"In the opinion of our Board and management, the underlying businesses of Berkshire are worth considerably more than this amount, though any such estimate is necessarily imprecise," Berkshire said in a statement. One long-time Buffett investor said the "Oracle of Omaha" was effectively buying two things cheaply - Berkshire as an operating company for a broad set of industrial and consumer businesses, and Berkshire as a portfolio of financial and other stocks that have been heavily sold of late.
"There's just so much leverage right now, this is close to as good a set-up as you might ever see, to be a domestic play in a land of people hating domestic, with double leverage," said Bill Smead, chief investment officer of Smead Capital Management in Seattle.
Berkshire Hathaway Class A shares rose 5.7 percent to $106,000 in midday trading, while the more actively traded Class B shares rose 6.3 percent to $70.56. Last week both classes fell to their lowest point since early 2010. The A shares are so expensive because Berkshire has never split them, choosing instead to let them appreciate over time. The B shares, which hold lesser voting rights, were split to help finance the take-over of railroad Burlington Northern. The company said it would use cash on hand to fund the buybacks, but would not buy any shares if doing so took the company's cash position below $20 billion.