FYI | May 15 2006
By Rudi Filapek-Vandyck
Warren "The Oracle from Omaha" Buffett’s nouse for investment decisions outside the US equities market has suffered a series of serious blows recently.
First there was his long standing view that the US dollar had only one way to go and that was south. This view has been proven correct but Buffett hasn’t exactly turned his prophecy into a profit.
At the recent annual meeting of Berkshire Hathaway shareholders it was revealed he had already scaled back his market positioning at a time when the greenback finally started tumbling again.
The news followed numerous reports suggesting significant losses on Berkshire Hathaway’s currency positions over the period 2004-2005.
At the same meeting Buffett also acknowledged he sold his silver holdings way too early, missing out on the recent stellar rally in the spot silver price.
And now the rumourmill is spinning Buffett may be eyeing one of Australia’s market darlings Rinker Group (RIN). The origin of the rumour was the revelation, at the same shareholders gathering, that Buffett’s listed investment vehicle Berkshire Hathaway is "cooking up" a US$15bn deal.
Berkshire Hathaway currently has US$40bn in cash generating nothing but a dismal interest rate return and it would only seem logical Buffett and Co are looking to generate a higher return from it.
US blog-webservice The DealBook, closely linked to The New York Times, started its own "buts and ifs" investigation into the matter and came up with a short list of candidates, including the former CSR (CSR) spin off Rinker Group.
The news was picked up by the Australian Financial Review’s weekend edition, but what the AFR failed to mention is that the story had already been posted on The DealBook’s website on the 8th of May.
Investors should also take into account that Buffett said at the Berkshire Hathaway meeting that there was a "low probability" the considered deal would actually happen.
The DealBook, specialised in possible merger and acquisition deals, conducted its own analysis by screening possible take-over candidates with market capitalisations of US$14bn to $16bn and taking into considering other guidelines that Berkshire Hathaway has previously laid out for its acquisition strategy.
These criteria include companies having pre-tax profits of at least US$75m and "little or no debt". Technology stocks were excluded as well as it is known Buffett doesn’t really fancy getting too "techy". Just to make sure, The DealBook also excluded what it describes as "complex medical devices companies".
As such, the journalists compiled a short list containing companies such as Genworth Financial and Japan’s Kirin Brewery, which is the major shareholder in Australia’s Lion Nathan (LNN).
Other companies on the list are Cameco Corp, Legg Mason, Investor AB and Luxembourg based European media company RTL Group. And Rinker.
According to the AFR weekend story, Peter Kiewit, the previous owner of Rinker, holds office in the same building as Buffett in Omaha.
The full story can be read at http://dealbook.blogs.nytimes.com/?p=2736#more-2736