Is Warren Buffett About to End a 40-Year Relationship?

Warren Buffett's Berkshire Hathaway may restructure its Graham Holdings stake.

Feb 13, 2014 at 10:15AM

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

U.S. stocks opened lower on Thursday, with the benchmark S&P 500 and the narrower Dow Jones Industrial Average (DJINDICES:^DJI) down 0.15% and 0.21%, respectively, at 10:15 a.m. EST. Reuters cited "a disappointing outlook from Cisco Systems (NASDAQ:CSCO)" as one of the factors weighing on the market this morning, but as I pointed out in my review of Cisco's fiscal second-quarter earnings, the outlook wasn't disappointing and today's decline in the stock looks like a buying opportunity for long-term, value-oriented investors. Speaking of such investors, their spiritual leader, Berkshire Hathaway (NYSE:BRK-B) CEO Warren Buffett, may be on the verge of unwinding a very long-term shareholding -- that with Graham Holdings (NYSE:GHC), formerly the Washington Post Co.

In an SEC filing, Graham Holdings said it was in discussions with Berkshire Hathaway regarding a transaction in which Berkshire would use its entire $1.1 billion Graham Holdings stake (roughly 28% of the company) to acquire an "as yet unformed subsidiary" that would house an undisclosed business and other assets. Those assets could include Berkshire shares that Graham Holdings owns.

What could the undisclosed business be? Following the sale of the flagship Washington Post newspaper to Amazon.com CEO Jeff Bezos, Graham Holdings' remaining assets include its Kaplan education group, six local U.S. television stations, a cable operator, online news site Slate, a social marketing company, and a hospice operator. In addition, at the end of September, Graham's pension plan held $228.6 million worth of Berkshire Hathaway shares.

Last August, at the time of the announcement of the sale of the Washington Post, I noted that Washington Post Co. shares had proved a mediocre investment over the past two decades, trailing the S&P 500 by more than 2.5 percentage points on an annualized investment (although starting at the time Buffett began accumulating shares, in 1973, the performance was much better, with an estimated annual return of 11.5%). Since then, shares of Graham Holdings have risen 16%.

In that context, it makes sense for Buffett to revisit the nature of his stake in Graham Holdings. The Oracle of Omaha is a long-term investor, and although he likes to boast that his favorite holding period is "forever," times, circumstances, and businesses change, and Warren Buffett is still at the helm to ensure the Berkshire adapts to those changes.

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Alex Dumortier, CFA has no position in any stocks mentioned; you can follow him on Twitter @longrunreturns. The Motley Fool recommends Berkshire Hathaway and Cisco Systems. The Motley Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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