U.S. stocks are lower in early Tuesday afternoon trading, with the Dow Jones Industrial Average (DJINDICES: ^DJI) and the S&P 500 (SNPINDEX: ^GSPC) down 0.14% and 0.11%, respectively, at 1 p.m. EST.
Through superior capital allocation and the resulting compounding of intrinsic value, Warren Buffett's conglomerate, Berkshire Hathaway, has become so large that its subsidiaries make billion-dollar acquisitions that go nearly unnoticed.
Bloomberg noted that Berkshire's third-quarter report, which was released last Friday, contained the price of this specific acquisition that was completed at the end of the quarter:
On September 30, 2015, UTLX acquired approximately 25,000 tank cars from General Electric Company's leasing unit for a total purchase price of approximately $1.0 billion. This transaction and related transactions to be completed in the fourth quarter of 2015 are expected to further enhance the full-service capabilities of UTLX's repair, maintenance and inspection network and contribute to future revenue and earnings growth.
What is UTLX, you ask? According to the same quarterly report, "UTLX manufactures, owns and leases railcars and intermodal tank cars, and also owns and leases cranes." Within Berkshire's classification of activities, the business falls under Finance and Financial Products.
For Bloomberg, the "buried" disclosure illustrates the challenge analysts and investors face in trying to assess Berkshire's operating performance and value. But is that really a fair criticism?
Marmon Holdings, the Berkshire subsidiary that owns UTLX, did announce the acquisition with a press release on Sept. 30., though the terms of the transaction were not disclosed.
(Incidentally, the scope of that spate of deal-making with General Electric is actually even larger than a billion dollars, as the report refers to "this transaction and related transactions to be completed in the fourth quarter of 2015.")
"Bolt-ons" refer to acquisitions that Berkshire contributes to an existing subsidiary, or that are carried by the subsidiary itself. Here's how Berkshire has summarized its bolt-on acquisition activity in the previous two years' annual reports:
We contracted for 31 bolt-ons, scheduled to cost $7.8 billion in aggregate. The size of these transactions ranged from $400,000 to $2.9 billion.
The largest of those transactions, that of the Duracell battery business, was announced in a press release that included the value of the deal.
Last year, we contracted for 25 of these [bolt-on acquisitions], scheduled to cost $3.1 billion in aggregate. These transactions ranged from $1.9 million to $1.1 billion in size.
The largest of these was Marmon's acquisition of IMI plc's beverage dispensing and merchandising operations, which was also announced in a press release that included the price.
I think Bloomberg (and some of the analysts who cover Berkshire) may be missing the plot, here. Buffett is very clear about his approach to disclosure regarding his "partners," as laid out in the Berkshire Hathaway Owner's Manual (my emphasis):
Our guideline is to tell you the business facts that we would want to know if our positions were reversed.
[...] We will be communicating with you in several ways. Through the annual report, I try to give all shareholders as much value- defining information as can be conveyed in a document kept to reasonable length. We also try to convey a liberal quantity of condensed but important information in our quarterly reports, though I don't write those (one recital a year is enough).
Perhaps it's this part of Berkshire's policy specifically that grates with analysts and journalists:
In all of our communications, we try to make sure that no single shareholder gets an edge: We do not follow the usual practice of giving earnings "guidance" or other information of value to analysts or large shareholders. Our goal is to have all of our owners updated at the same time.
I believe Buffett has established the right criteria for disclosure and is following them more than adequately. Investors would be better served if more companies did the same.
Alex Dumortier, CFA, has no position in any stocks mentioned. The Motley Fool owns shares of and recommends 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.