Warren Buffett Is Dumping Stocks out the Backdoor
by Wolf Richter
WolfStreet.com
November 17, 2014
Maybe Warren Buffet’s impeccable sense of timing kicked in. Or maybe he got shook up a little when IBM reported another revenue and earnings debacle in October, and in the subsequent swoon of its shares, he lost $1.3 billion. Followed a day later by a $1 billion hit on his position in Coca-Cola when it reported earnings. And all year, he has been getting hammered on his investment in British grocery chain Tesco which has lost nearly half its value, costing him around $750 million.
All this, even while stock markets have been bouncing around record highs.
“I like buying it as it goes down, and the more it goes down, the more I like to buy,” said the master manipulator during one of his hype interviews on his favorite and always helpful promo platform, CNBC, in early October. And true to form, filings revealed on Friday that he bought a few things here and there, such as increasing his stake in GM, and that he sold a few things too. But those were smallish amounts by his standards.
Meanwhile, he is dumping some of his big, highly profitable positions in publicly traded stocks – but not out the front door.
It was skillfully obscured by the ruckus over the tax aspects of these deals: that one of the richest guys in the world, or rather his company, Berkshire Hathaway, would be able to take advantage of a specially created tax loophole that regular folks don’t have access to, a loophole that would save the company billions in taxes.
Last week, it was Berkshire’s complex acquisition of Procter & Gamble’s Duracell unit. Everyone dutifully fell in line, laid out by Buffett, and called it an “acquisition,” though the other and more important half of the transaction was the sale of a huge position of P&G shares.
A “brilliant move,” explained Doug Kass, president of Seabreeze Partners Management.
Instead of paying cash for Duracell, Berkshire will hand over $4.7 billion in P&G shares that it has owned since 2005 when P&G bought Gillette, in which Berkshire had a major equity stake since 1989. As part of the deal, P&G agreed to infuse $1.8 billion in cash into Duracell. And it’s going to be costly for P&G: it would take a charge of 28 cents per share.
OK, so this deal involves a lot of paper shuffling. But in effect, Berkshire is selling $4.7 billion in P&G shares for which, as Reuters reported, it paid $336 million at the time of its investment in Gillette. Normally, an outright sale with capital gains of this magnitude would have triggered a hefty tax bill. By swapping those shares for Duracell, no taxes are due.
The Rest…HERE
