Buffett Makes a Rare -- but Intelligent -- Exit

Warren Buffett puts the touches on Berkshire Hathaway's exit from Graham Holdings.

Mar 12, 2014 at 7:00PM

U.S. stocks ended the day roughly unchanged on Tuesday, with the benchmark S&P 500 index up 0.03%, while the narrower Dow Jones Industrial Average (DJINDICES:^DJI) fell 0.07%. Last month, I highlighted that Berkshire Hathaway (NYSE:BRK-B) was in discussions to unwind its four-decade relationship with Graham Holdings (NYSE:GHC) (and its predecessor, The Washington Post Company). Under the proposed structure, Berkshire would exchange all (or most of) its Graham Holdings stock for an "as yet unformed subsidiary" that would house a business and assets from Graham Holdings' portfolio. Today, Berkshire filed a form with the Securities and Exchange Commission that reveals what Graham Holdings is contributing to the swap: WPLG, a Miami television station, along with nearly all of its Berkshire "B" shares and $328 million in cash.

In reporting the story, CNBC.com is carrying the headline "Buffett's Berkshire gets its first TV station." That may well be true if we are referring strictly to Berkshire's operating subsidiaries. However, Buffett is not unfamiliar with this industry -- let's not forget the $518 million investment he made in Capital Cities' shares after its takeover of ABC in 1985. That gave Berkshire an 18% stake in the merged company, Capital Cities/ABC, and Buffett a seat on its board. (Capital Cities/ABC was acquired a decade later by another one of Buffett's favorite companies, the Walt Disney Company.)

Is Buffett getting a steal here? Given the longevity and nature of the relationship he has enjoyed with The Washington Post Company and the Graham family, I believe that he is treating Graham Holdings fairly. In the press release announcing the deal, Buffett offered a statement according to which he is "sure this is a mutually beneficial transaction for both companies."

Mutually beneficial, perhaps; equally beneficial, no. Buffett didn't become the world's third richest man by not looking out for No. 1; here are two winning aspects of the deal for Berkshire and its shareholders:

  • The operating business: WPLG is a solid media property. In the November ratings period, it was ranked second among Anglo stations in Miami (it was tied for first place a year earlier).
  • The stock swap: In contributing Berkshire's Graham Holdings shares, Buffett is effectively paying with a currency that looks somewhat overvalued. In exchange, he is receiving Berkshire shares, which are currently undervalued (or no worse than fairly valued, at the very least). Furthermore, the long-term business prospects of Berkshire Hathaway are superior to those of Graham Holdings.

Graham Holdings' prospects are certainly much better than those of the Berkshire's textile operations when Buffett ultimately decided to shutter it. Nevertheless, this looks like an intelligent exit from a business association that Buffett had maintained through roughly four-fifths of Berskhire Hathaway's existence.

Warren Buffett wants to make you a better investor
Warren Buffett has made billions through his investing and he wants you to be able to invest like him. Through the years, Buffett has offered up investing tips to shareholders of Berkshire Hathaway. Now you can tap into the best of Warren Buffett's wisdom in a new special report from The Motley Fool. Click here now for a free copy of this invaluable report.

Alex Dumortier, CFA, has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers