Chris Hill: We're going to talk all about Berkshire Hathaway, because there was a whole
lot of Berkshire in the news today. But, as I indicated to you guys earlier this morning,
I think I need to begin today's episode by taking a little bit of humble pie. Eat a little
crow, say what you will. You may recall, we recently talked about Gannett making a bid
for Tribune Publishing, and Tribune Publishing stock just jacked up 50% or so, 60%, something
like that. They turned it down, and I was floored by that. I thought, "Are you kidding
me? With the deal that's on the table, you're going to walk away from that?"
And I have to eat some crow because shares of Tribune Publishing are up another 21% today
because Gannett came back to the table with a higher bid! The original bid was to the
tune of $815 million. This is $865 or so. Well played, Tribune Publishing. They got
a better deal. Are they going to take this one now?
Moser: I would imagine so. It's always nice to know you have something that someone else
wants. That's really the ultimate bottom line here. It makes you think of the Marriott / Starwood
thing that was going on not too terribly long ago. Hill: Lot of back and forth there.
Moser: Right, in an industry where it could be argued that scale is one of the greatest
competitive advantages. The media space is significantly different. But, thanks to the
internet, it is a very fast-changing space, where I think it really behooves these big
media properties to have a number of different sorts of brands in their portfolio, different
ways they can reach out to the local economies, as it were. You see, what, Tribune has LA
Times, among others. Hill: And the Chicago Tribune.
Moser: Obviously a very big market too. Very big markets there. Given the way we get our
news today, I said this, I think last time we talked about this, we used to care, I think,
much more about the brand that was actually delivering the news. I don't think that really
is the case so much anymore. So, a lot of these media companies are facing a really
big choice here. Either consolidate or face the possibility of going out of business.
Muckerman: Yeah, I'm wondering what the poison pill they put in last week. Oaktree Capital,
their second-largest shareholder, wanted the first deal to go through. So I'm assuming
they're going to put even more pressure on them to allow this deal to go through.
Hill: And Oaktree has about 15%, I believe? It's a pretty sizable stake.
Muckerman: That's right, just behind the CEO or the founder. One individual is the largest
shareholder, and then Oaktree Capital is the second-largest. No insider would be the largest,
I'm thinking.
Hill: Gannett has a friend in the room. That should help. We'll see how this plays out,
obviously. But I think if they decide to reject this out of hand the way they did ... again,
give Tribune Publishing credit. They got a higher offer, and they rejected that previous
deal, I think, unanimously. But, I don't know, I think they would be wise to take a good,
strong look at this. If I'm Gannett, and they get turned down, I think I'm going to go shopping elsewhere.
Muckerman: I think it was funny the way Gannett phrased it, "We reevaluated it, we think there
might be more value we can extract ... " I'm thinking they just offered them the low offer
to begin with. Moser: Sure.
Muckerman: And now they're like, "Oh, we'll just have an excuse as to why we're offering
more money now." I can't imagine one extra week of due diligence arrived at 22% more
value they could extract.
Moser: No doubt. It's the same in any negotiation. It's negotiating one on one. You throw out
an offer there. If they take it, great. If they say no thanks, you can find some sort
of middle ground. I suspect that's probably what's happening here.
Hill: It's good to be a shareholder of Tribune Publishing with your stock up about 85% in
the last month. Let's move over to Berkshire Hathaway. Why
don't we start with the 13F filing, their quarterly filing. We'll get to the big stakes
that Berkshire Hathaway owns, and the degree to which they are increasing or decreasing
some of those large stakes. But the headline is that Berkshire Hathaway is now a shareholder
of a little fruit company we like to call Apple. All the reports indicate that this
was not Buffett's call, this was ... was it Ted Weschler?
Moser: Either Combs or Weschler. I haven't read if they named one or the other, but I know ...
Hill: One of his trusted lieutenants made this purchase.
Moser: Yeah. That makes sense. I think, more and more, as time goes on, we're going to
see that's generally the case, where those two are going to be making probably more of
the equity investments. I think Buffett, and maybe Munger, to a lesser degree, can use
their reputation in the business world as perhaps facilitating deals or helping to back
deals, like they've done, or, it's being rumored, at least, that they're going to do something
like that with Yahoo.
I mean, you have these two guys who are younger, have maybe a little bit of a different perspective
on the world. They invest very similarly to how Warren Buffett invests. But I'm sure they
probably feel like they have a better grasp on technology than perhaps Buffett feels he
might, which could explain a lot behind this deal. But, they have virtually infinite financial
resources, so they really need to figure out ways to play big ideas, and Apple is by far
one of the biggest.
Muckerman: Kind of fits the mold. Didn't they invest in Kinder Morgan when Kinder Morgan
sold off. So, you see Apple selling off quite considerably. So possibly, just seeking that
value that Buffett was known for for the long tenure of his career so far.
Hill: Do we run the risk of trying to read too much into this? I'm just thinking about
anyone who is looking at this move. Again, this is not Buffett, this is one of his lieutenants.
I think it would be understandable for an investor looking at this move to ask the question,
"Does this give us a glimpse into the future of Berkshire Hathaway post-Warren Buffett."
And I'm wondering, that may be true, although, do we risk reading too much into that? That
once Buffett, for whatever reason, is no longer running Berkshire Hathaway, do we see a lot
more move in into technology investments? Or, was this just the best use of capital
at this time?
Muckerman: I think with Apple, it's a tech stock, yes, but it's the biggest stock in
the world, just ahead of Google. It's not your average small cap, mid cap tech stock
that's going to be this volatile beast that you don't really understand. It's a cash-generating
machine. It has a dividend now. I don't think it's your typical tech stock. It might be
a first foray into it, really. But I don't think it's signaling a significant sea change here.
Moser: No. And I think, probably, as time goes on, just the way the world changes, the
way technology moves so fast, just that alone, Berkshire Hathaway is more or less going to
have to dip a toe into the tech space a little bit more as time goes on. But yeah, to Taylor's
point there, Apple is not your typical tech company. You're buying, really, one of the
most powerful brands on the entire planet. It's probably a bit easier for them to look
at this and say, "They're selling a product. They're selling phones and tablets and the
software that goes with it." It's pretty easy business to understand.
That said, where Apple is today versus where it was 10 years ago, this is a fundamentally
different investment now. This is not like investing in some growth-style tech company
that could have multi-bagger status in the next 5-10 years. Chances are that's not going
to happen. And when you go through the rest of Berkshire's portfolio, you see a lot of
those old reliables in there, like Moody's and Phillips 66 and General Electric and IBM
and Coca-Cola and Wells Fargo. Apple, I think, is the same type of business. And people identify
it very much the same way.
I'm a little surprised that, given all of the positive sentiment that Buffett has offered
towards Jeff Bezos and what he's done in his life with Amazon, I really honestly thought
maybe we would see Berkshire consider initiating a position in Amazon, because they have a
huge position in Walmart, and I think a lot of us believe that Walmart is sort of the
old guard there, and Amazon is really the new guard, when it comes to retail. And again,
retail is not all that difficult to understand. Amazon I would also put in there as a tech
company, because they are.
Hill: They're not paying a dividend, though. Muckerman: No, not quite.
Moser: That's true, but I also, if you're asking me which one out-performs in the next
five years, I'm picking Amazon without even thinking twice about it. Carl Icahn just recently
divested from Apple, saying it was no longer the no-brainer that he once said it was. That
ultimately is the market. People disagree, and you pick a side there. But it seems like
they at least feel like there's going to be some kind of an attractive return here in
the next few years.
Muckerman: Carl Icahn didn't really get what he wanted in terms of activism, the higher
shareholder returns in terms of a dividend or share buyback. So maybe he's admitting
defeat moreso than Apple might not be a great stock for the next few years.
Moser: And he was pegging Apple shares at some point in the past year as maybe a double
from their current levels. Granted, that wasn't all organic growth, that would share buybacks
along with whatever product came in the pipeline there. I think a lot of us felt that was maybe
a bit optimistic as well, especially when you look at how Apple has performed. Go back
to 2012, when they initiated the dividend. It's not like it's out-performed the market.
It really hasn't. So, I would love to see them juice the dividend to little bit. Buybacks
are fine. And if we happen to see a tax holiday at some point where they can bring some of
that cash back home, that would probably be a catalyst as well.
Hill: You mentioned Berkshire Hathaway's stake in Walmart. That is one of the smaller headlines
today -- when you look at where the investments are, and the big investments that Berkshire
Hathaway makes, we have seen it disclosed that they have a smaller stake in Walmart,
MasterCard, Procter & Gamble. They've increased their stake in IBM, Phillips 66 and Visa.
I'm assuming that the Visa / MasterCard is not so much that they greatly prefer Visa
to MasterCard. That may have just been simply a slight over weighing issue. It's not like
AT&T where they outright eliminated their stake.
Phillips 66. Any insight into the increase in their stake there?
Muckerman: Not really. I mean, it's one of the bigger downstream companies in the U.S.,
in the world. It could certainly be a play on the chemical side of the business, which,
chemicals, they're benefiting from low oil prices, they're benefiting from low natural
gas prices. I think the growth in what we use chemicals for, certainly has a bright
future. I think it's more along the lines of not gasoline but the other by-products
you're getting out of Phillips 66. And they're putting a lot of money into that business.
I think that might be what they're looking at. And, obviously, energy has been suffering
for a while. So maybe there's a value side to that play, as well.
Hill: You already touched on this, Jason, but let's spend a couple minutes before we
wrap up on the Yahoo news. I think we might have said, on a previous episode, when we
were talking about Yahoo and the bids that were being made. Clearly Verizon making a
bid for Yahoo, other players coming in as well, Yellow Pages. Reminding us that Yellow
Pages still exists. But, I think we said at the time, "Look, this is still an opportunity
for a mystery horse to come in," and that was the news that broke over the weekend.
Dan Gilbert, the founder of Quicken Loans, is heading up a contortion to make a bid for
Yahoo's core assets. And Warren Buffett has come out and said he's willing to be the financial
backer. He was also very clear about saying, "I'm not interested in the stock," even though
that presumably would exist in the terms of the deal, that they would be able to convert
some of the finances into stock if they so choose. But at least on the surface of it,
were you surprised by this?
Moser: I was very surprised. I thought maybe he was mixed up and thought they were talking
about a deal to put a bid in for Yoo-hoo and not Yahoo.
Hill: Think he's a fan of the chocolate drink?
Moser: So, for Buffett, the luxury he has is he can pretty much dictate the terms. Going
into something like this with Yahoo, he's going to figure out any way he can to make
this beneficial for him. That's the point. I would be surprised if there was a way for
him to be rewarded on this through Yahoo stock. I think we're probably all on the same page
that Yahoo's stock has maybe had its biggest run. I think it's best days are probably behind
it, because when you X-out that Alibaba interest, and then you just look at the general space
today, Yahoo is just not the same as it once was. Eyeballs are just going to other place.
So any way he can figure out an opportunity to help facilitate a deal and dictate financial
terms that work out for him ... he's really good at that. It could be debt that convert
into preferred shares, whatever it is, I suspect we will see that kind of angle there, as opposed
to him just laying out interest there, that he would love to own Yahoo shares. I don't
think he really would. But I think there's a way he sees that they could potentially
profit from this being part of the deal.
Muckerman: Who's to say that Yahoo remains public after it gets bought? They're only
selling the core business, not the entire business. Maybe these buyers take it private.
Verizon is one of the lead dogs in possibly purchasing it, to buying AOL assets and challenging
Facebook and Google on the digital advertising side. My bet would be that Yahoo core assets
disappear from the public markets, in most cases.
Hill: It's interesting, because as we talked about before with Verizon, intellectually
Verizon bidding for Yahoo's core assets makes sense for me. They need content. Yahoo does
a very good job with sports and finance. And, as I always like to point out, we're one of
the companies that works with Yahoo Finance. Dan Gilbert is the founder of Quicken Loans,
so he clearly has the finance background. He's also the owner of the Cleveland Cavaliers.
And I'm wondering if Gilbert has enough, or feels like he has enough, insight, both into
Yahoo Finance and the world of sports content, that that's what he's after here, that he
feels like he has enough intel about the way those two businesses operate.
But I think you're right, Taylor. If Gilbert is the one who ends up winning the bid here,
I would be surprised if those assets remain public, whereas with Verizon, if they come
under the Verizon umbrella, they technically still are.
Moser: Yeah, more than likely.
Hill: Has to be pretty good to be Dan Gilbert these days. You get the Cleveland Cavaliers,
primed to make the NBA finals one more time.
Moser: You have Buffett wanting to shell out some cash and make a deal.
Hill: Good to be Dan Gilbert. Muckerman: Trying to turn Detroit around.
Moser: Wouldn't you rather work with Buffett than try to weasel some cash out of the bank?
I'm sure he's way more fun to be with.
Hill: I would think so. Don't rule out him bidding for Yoo-hoo, however, because we know
he loves dairy. The man has a sweet tooth.
Moser: It'd be right up his alley. And I’m not knocking Yoo-hoo, I think that stuff is
really good!
Hill: But Buffett is a walking advertisement for, there's no substitute for having good
genes. He is in his mid 80s and does not appear to take very good care of himself.
Muckerman: Five Cokes a day.
Hill: (laughs) He drinks a lot of Coca-Cola products, he is a cheerleader for Dairy Queen.
Moser: My kind of guy. Hill: Loves the Dilly Bars.
Muckerman: He's an outlier in more than one way.
Hill: (laughs) Yes. Outlier in investing, outlier in personal health. Thanks for being
here, guys. Muckerman: Thanks.
Moser: I appreciate it.
Hill: As always, people on the program may have interests in the stocks they talk about,
and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks
based solely on what you hear. That's going to do it for this edition of Market Foolery.
The show is mixed by Dan Boyd. I'm Chris Hill. Thanks for listening, we'll see you tomorrow.