Berkshire Won't Be Buying This Health Care Company After All

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

If you're wondering which company Berkshire Hathaway (NYSE: BRK-B  ) (NYSE: BRK-A  ) might buy next, go ahead and cross DaVita Healthcare Partners (NYSE: DVA  ) off your list.

As it turns out, Berkshire recently approached the kidney disease specialist about increasing its 14% stake in the company, which led to a formal agreement "that reflects the fact they're a passive investor and this is a friendly relationship," according to Kim Rivera, DaVita's chief legal officer.

That's too bad, considering that DaVita was the first company I singled out in February as a potential acquisition candidate for Berkshire after it announced a joint arrangement with 3G Capital to acquire H.J. Heinz (UNKNOWN: HNZ.DL  ) .

After all, Berkshire had added nearly 180,000 shares of DaVita to its portfolio in the fourth quarter of 2012 alone, and it had more than enough cash to buy the remaining $9.5 billion in shares that it didn't already own at the time.

What's more, DaVita's $4.4 billion acquisition of HealthCare Partners last year was a great move to diversify away from its focus on kidney disease and toward the operation of 152 profitable general health care clinics.

Still, a wild card remained with the fact that Berkshire's position was likely opened not by Warren Buffett, but instead by one of his younger investing prodigies in Ted Weschler or Todd Combs. As a result, I noted that Buffett might have required some convincing that DaVita would be able to effectively fit in with the rest of Berkshire's many subsidiaries.

Today's news, however, proves that certainly wasn't outside the realm of possibility. The new agreement, for its part, prohibits Berkshire's stake from rising above 25% and will remain in effect for as long as Berkshire retains an equity stake of 15% of more.

Solid first-quarter earnings
If that weren't good enough, DaVita's first-quarter earnings report Tuesday showed the world why Berkshire likes the company so much. As of this writing, shares hit a new 52-week-high and are trading up more than 9% after the company said sales rose more than 50% year-over-year to $2.83 billion, and adjusted earnings came in at $2.07 per share. Both numbers beat average analyst estimates, which called for earnings per share of $1.80 on revenue of $2.79 billion.

In addition, shareholders don't seem to mind that the company set aside $300 million for the settlement of a U.S. Justice Department investigation into a potential kickback scheme. CEO Kent Thiry did say, however, that a final agreement with the U.S. investigators hasn't been reached yet, asserting, "We've been under the impression for more than a decade that the way we do things is fine, so we've had to do a lot of sorting out with them."

Foolish final thoughts
Of course, it's a safe bet that few companies would complain about Berkshire Hathaway standing as their single largest shareholder -- and for DaVita, that's a vote of confidence that cannot be overstated. As a result, and as long as they maintain Berkshire's seal of approval, I won't be closing my "outperform" CAPScall on the company anytime soon.

More expert advice from The Motley Fool
Thanks to the savvy of investing legend Warren Buffett, Berkshire Hathaway's book value per share has grown a mind-blowing 586,817% over the past 48 years. But with Buffett aging and Berkshire rapidly evolving, is this insurance conglomerate still a buy today? In The Motley Fool's premium report on the company, Berkshire expert Joe Magyer provides investors with key reasons to buy as well as important risks to watch out for. Click here now for instant access to Joe's take on Berkshire!

Read/Post Comments (0) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2417695, ~/Articles/ArticleHandler.aspx, 5/31/2016 6:12:44 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 17,787.20 -86.02 -0.48%
S&P 500 2,096.96 -2.10 -0.10%
NASD 4,948.06 14.55 0.29%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

5/31/2016 4:01 PM
BRK-A $211695.00 Down -2608.00 -1.22%
Berkshire Hathaway… CAPS Rating: *****
BRK-B $140.54 Down -2.81 -1.96%
Berkshire Hathaway… CAPS Rating: *****
DVA $77.32 Up +0.27 +0.35%
DaVita, Inc. CAPS Rating: *****
HNZ.DL $72.49 Down +0.00 +0.00%
H.J. Heinz Company CAPS Rating: ****