Berkshire-B to Split 50-1 Soon?

From CNBC.com and the AP:

Warren Buffett's Berkshire Hathaway is sending a plan to split the iconic company's Class B shares to a shareholder vote as part of its plan to buy the Burlington Northern Santa Fe.

Holders of the relatively low-cost shares will vote on a 50-for-1 stock split, already approved by the Berkshire Hathaway board. The date of the vote has not been set.

Berkshire Hathaway said Tuesday that the split is needed to issue B-shares as part of the $26 billion buyout of the Burlington Northern Santa Fe, the largest acquisition in the company's history. Berkshire already owns 22 percent of the railroad.

The majority of the shares issued in the $100-per-share deal will be Class A shares, but holders of smaller amounts of Burlington shares who opt for a share exchange rather than cash will receive Class B shares.

Class A shares are not being split. Class B common shares, dubbed "Baby Berkshire," was first issued on May 8, 1996. It was created to meet demand from investors who wanted to share in Buffett's legendary investment expertise, but couldn't afford Berkshire Hathaway's original stock.

Class A shares [BRK.A 100150.00 --- UNCH (0) ] remain the highest priced on the New York Stock Exchange. The shares closed Monday at at $98,750. The Class B shares [BRK.B 3314.1399 --- UNCH (0) ] ended the session at $3,265.

With the split, each Class B share will be worth $65.30.
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Class B shares can never sell for anything more than a tiny fraction above 1/30th of the price of A, according to Berkshire documents. When it rises above 1/30th, Class A shares are purchased and converted to B shares to push it back to the intended ratio.

A Class B share has 1/200th of the voting rights of a Class A share. Class A shares can currently be converted into 30 Class B shares.

The conversion privilege does not extend in the opposite direction.

...........

So, let's extend their poll to the FW community. Would you buy at $50-$70 a share for baby Berkshire?

Does it matter?

The price is irrelevant. After this split, The total shares outstanding increases 50 fold so the potential 50x extra shares you can get a lower price is meaningless as it will equal to 1 share pre split.

That being said, many mutual funds hold Berkshire B, so might want to check your funds in your 401k to see if you already have exposure.

dpid said: Does it matter?

The price is irrelevant. After this split, The total shares outstanding increases 50 fold so the potential 50x extra shares you can get a lower price is meaningless as it will equal to 1 share pre split.

I know a few friends/family that won't buy shares in stocks that are priced too high. They say the shares are too "expensive", and think along the line of "Why buy this at $100 when I can buy that for $10?".

Well since I buy stocks in $1-$2.5k amounts (yep some of a paycheck), this allows me to purchase them. Good news for me!

I would have been ok with a $500 share price, tho.

Ouch...

According to Bloomberg

"Berkshire Hathaway Inc.’s planned 50- for-1 stock split will put its Class B shares within reach of investors Warren Buffett once called an “inferior” class."

Buffett's 1983 Annual Report said: Were we to split the stock or take other actions focusing on stock price rather than business value, we would attract an entering class of buyers inferior to the existing class of sellers. Would a potential one- share purchaser be better off if we split 100-for-1 so he could buy 100 shares? Those who think so and who would buy the stock because of the split or in anticipation of one would definitely downgrade the quality of our present shareholder group.

dpid said: Ouch...

According to Bloomberg

"Berkshire Hathaway Inc.’s planned 50- for-1 stock split will put its Class B shares within reach of investors Warren Buffett once called an “inferior” class."

Buffett's 1983 Annual Report said: Were we to split the stock or take other actions focusing on stock price rather than business value, we would attract an entering class of buyers inferior to the existing class of sellers. Would a potential one- share purchaser be better off if we split 100-for-1 so he could buy 100 shares? Those who think so and who would buy the stock because of the split or in anticipation of one would definitely downgrade the quality of our present shareholder group.

hell, BB called us devil customer's, but as long as they can make us money, we still use them!

My understanding is that this vote was a contengcy of the aquisition.

It'll be interesting to see how the volatility increases on a now "affordable" stock with a daily ceiling.

Anyone know other examples of stocks with a price ceiling?

I'm not liking this a bit. Buffet's standard philosophy for BRK.A and BRK.B is that he doesn't believe in splits or dividends. he just wants the stock price to go up. At the 3K range, I personally like it because it tends to bring down the volatility of BRK.B I can tell you as owning a number of BRK.B's, it doesnt make me happy at all..it actually makes me feel like selling.

As far as people not wanting to buy it at such a high price, it never made sense to me. if you are going to buy 3K worth of stocks what's the difference if you are getting 3K of $10 stocks or 3K of $3,000 stocks. it's the same commission and same dollar amount. if the stock goes up 5%, it's still 5% of $3,000....people are silly.

FWIW Buffet is old and when he dies I imagine a sharp immediate decline in the value of the stock price. It should recover once the fear settles and I hope to buy during that sharp decline. Of course that may not happen for 10 years and the stock may go up 500% between now and then, but it's a risk I am willing to take as part of my speculation.

As a long time shareholder of BRK.B, I agree that this will only drive up volatility. In addition, although BRK.B is currently optionable, there is very little open interest on it. When BRK.B's share price falls to something attainable, volatility will go up simply because more people can play the option arbitrages. I would have preferred that Warren done a 10 to 1 split. $200-$400 share prices are not that uncommon (Google, Baidu, IBM) but Warren wanted to make the acquisition equitable and allow anyone who had BNI shares to exchange them for whole shares of BRK.B if they wished.

arendskatiem said: I hope this improves BNSF

well you saw what happened to their stock once it hit mainstream, right? up about 30% yesterday i think

mmusone said: I'm not liking this a bit. Buffet's standard philosophy for BRK.A and BRK.B is that he doesn't believe in splits or dividends. he just wants the stock price to go up. At the 3K range, I personally like it because it tends to bring down the volatility of BRK.B I can tell you as owning a number of BRK.B's, it doesnt make me happy at all..it actually makes me feel like selling.

As far as people not wanting to buy it at such a high price, it never made sense to me. if you are going to buy 3K worth of stocks what's the difference if you are getting 3K of $10 stocks or 3K of $3,000 stocks. it's the same commission and same dollar amount. if the stock goes up 5%, it's still 5% of $3,000....people are silly.

Noow what if I wanted to buy 4k worth of that stock, or 2k, or 10k? It not like I can buy 1.2 shares. That the only issue I could see with high priced stocks, outside of that I agree with you.

I should have shorted my investment in hookers and blow, sorry for the 2-1 split of my post.

mmusone said: As far as people not wanting to buy it at such a high price, it never made sense to me. if you are going to buy 3K worth of stocks what's the difference if you are getting 3K of $10 stocks or 3K of $3,000 stocks. it's the same commission and same dollar amount. if the stock goes up 5%, it's still 5% of $3,000....people are silly.

+1

So wait, you're saying 5% of $3,000 is the same as 5% of $3,000? I always get a chuckle out of that. For some reason people are unable to register that. Personally I think they are associating a $1 increase of a $5 stock with a $1 increase of a $3,000 stock.

manuvns said: i guess it open it to small investors and larger trading volume thereby increasing liquidity as well and decreasing bid ask spread as well .

And increasing volatility.

wmnetid said: mrredskin said: So, let's extend their poll to the FW community. Would you buy at $50-$70 a share for baby Berkshire?

FYI - Berkshire shareholders get discount on Geico auto insurance.

"-You are receiving a $#.## discount based on your membership in BKHATH ."

I was thinking the same thing... I think you get like a 5-10% discount as a shareholder... they'll have to dump that or every Geico customer (at least the ones on FWF) will go buy a share

I wonder what will happen?

tripleB said: This matters only if you believe that BRK will now find its way onto the SP500. It was not listed in the past due to its high price. If it earns a place then one stock will get bumped from SP500. Figure out the top 5 stocks most likely to get bumped and short them.That would be a nice boost, when all the index funds have to go pick it up.

mrredskin said: well of course it matters.

with this kind of split, more individuals are able to invest. i know i can't just fork over $3k+ for one share of a stock.
So it matters a little. But do you really think that individuals with less than $3K to invest really matter to the stock market of a company that trades over $30M in value daily? Put another way, average daily volume appears to be around 30,000 shares/day, so what if you can now buy 1 share on one day - will anyone even notice?

Edit: watch out for Yahoo's stats, they are getting the lot sizes wrong and inflating the apparent volume by 100x I think.

kgotze said:
I was thinking the same thing... I think you get like a 5-10% discount as a shareholder... they'll have to dump that or every Geico customer (at least the ones on FWF) will go buy a share

Unlikely.

I bet more than half of Geico's customers do not have a brokerage account outside their work sponsored 401k.

I bet that a lot of Geico's customers do not know about the shareholder discount.

I bet that a lot of Geico's customers live in states that do not permit them from receiving a shareholder discount.

I bet that a lof of Geico's customers are already receiving discounts that do not stack with the shareholder discount.

3 & 4 applied to me.

pladaroller said: Did anyone buy shares of Berkshire B right before or after the split? Trading volume has been really high.

I bought right before the Burlington Northern Santa Fe acquisition was announced .. bought @ approx. $3200. Good ROI, so far