DealBook Briefing: Berkshire Hathaway Seeks 'Huge Acquisitions'

Good Monday morning. The Weinstein Company will file for bankruptcy, and Fidelity is rethinking its stock-picker system. Businesses are reconsidering their relationships with the gun industry. Just in: United Parcel Service has sued the European Commission after it blocked a 2013 deal for the Dutch delivery company TNT Express, which was later bought by its shipping rival FedEx.

Will Warren Buffett get to use his ‘elephant gun’?

He certainly sees the need.

In his annual letter to Berkshire Hathaway’s shareholders, Mr. Buffett said:

Berkshire’s goal is to substantially increase the earnings of its non-insurance group. For that to happen, we will need to make one or more huge acquisitions. We certainly have the resources to do so. At year end Berkshire held $116.0 billion in cash.

But will he have the opportunity?

Mr. Buffett bemoaned the sky-high purchase prices that “proved a barrier to virtually all deals we reviewed in 2017.”

Critics’ corner

• Tara Lachapelle of Bloomberg Gadfly writes: “The best way Buffett can solidify his legacy is by returning to the M&A market with the same force and determination he’s always shown. He may need to pay more than he wants to, but what’s a little extra to Berkshire in the long run?”

• Mr. Buffett is on the wrong side of a generational shift, writes John Foley in Breakingviews. In contrast, BlackRock and Vanguard have waded in and called for companies to do good. That attitude is already baked into the Buffett view, Mr. Foley writes, “But notions of what’s now referred to as ESG — environmental, social and governance factors — are otherwise fuzzy in Berkshire’s universe.”

Other highlights from the letter

• Berkshire’s windfall of $29.6 billion from the U.S. tax overhaul was only slightly offset by $1.4 billion of tax payments on repatriated earnings. Mr. Buffett did not expand on his recent criticisms of tax cuts. Read more about what he did focus on here.

• Mr. Buffett railed against a new accounting rule that will affect future quarterly and annual reports. The change requires companies to include in earnings the gains and losses on stocks they hold but have not sold. Because Berkshire holds $170 billion of stocks, the impact on Berkshire’s bottom line could be significant.

Peter Eavis of The Times notes:

It would indeed be notable if Berkshire started to publish “adjusted earnings,” or financial statements that exclude certain items. In last year’s annual report, Mr. Buffett criticized companies that publish adjusted earnings that leave out costs like stock awards to executives. At the annual meeting on May 5, a shareholder may want to ask why shareholders should be asked to overlook losses on stocks.

Related

Michael Kives, a longtime Hollywood agent at Creative Artists Agency who has consulted and represented Mr. Buffett — as well as Mikhail Gorbachev, Katy Perry and Jessica Alba, among others — is striking out on his own with a new firm, K5. It will provide advisory services for companies “across media, sports, technology, finance, politics, and a variety of other industries,” according to an announcement expected to go out later today.

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Today’s DealBook Briefing was written by Andrew Ross Sorkin in Pyeongchang, South Korea; Stephen Grocer in New York; and Chad Bray and Amie Tsang in London.

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CreditAlexander Koerner/Getty Images

Weinstein Co. will file for bankruptcy

Talks about a sale to a group led by Maria Contreras-Sweet have collapsed. The group had offered to pay about $275 million for the company, plus the assumption of $225 million in debt.

The Weinstein board blamed Ms. Contreras-Sweet and one of her primary backers, Ron Burkle.

“Late last night, you returned to us an incomplete document that unfortunately does not keep your promises,” it said in a letter. “That is regrettable, but not in our power to change.”

The board, which includes Bob Weinstein, accused Ms. Contreras-Sweet’s team of failing to provide funding to keep the studio operating while the deal was completed and said she had proposed new sale conditions that meant the transaction would take much longer to close.

Abigail Johnson, chief executive of Fidelity Investments. CreditAndrew Innerarity/Reuters

Misconduct prompts Fidelity to rethink its stock-picker system

The mutual fund giant is considering abandoning the investment process that made its managers famous, unnamed sources told the WSJ.

The context

The change comes after an outside review of behavior within the stock-picking unit and reports of sexual harassment allegations.

More from the WSJ’s Sarah Krouse and Kirsten Grind:

Stock picking has been under unprecedented pressure in recent years as investors have poured money into low-cost index-tracking funds. The star-manager system helped fuel careers of top fund managers at the family-run firm, but it also created a system in which portfolio managers wielded outsize power over analysts, more than a dozen current and former employees said.

Corporate America examines its relationship with gun makers

Blackstone asked outside fund managers to detail their ownership in companies that make or sell guns by Sunday evening, according to unnamed sources that spoke to the WSJ.

Bank of America said it was examining its relationship with the weapons industry, too.

And Best Western, Delta Air Lines, MetLife, Symantec and United Airlines joined the ranks of companies cutting ties to the N.R.A. Here’s the list of companies that have distanced themselves so far.

The response to the Florida school shooting has happened faster than after previous mass attacks, partly because the survivors are teenagers well versed in the power of social media, The NYT’s Julie Creswell and Tiffany Hsu report.

What does this mean for corporate social responsibility?

• Mike Allen of Axios: “Be it guns or global warming, a fascinating trend is unfolding in the Trump era: Corporations, under intense social pressure, are filling a void left by governmental gridlock or avoidance.”

• Brooke Masters of The FT: “Wading into America’s fundamental divide on gun rights, even in the wake of a tragic school shooting, was probably not the way most chief executives expected to respond to the new enthusiasm for corporate social responsibility. There are big risks involved.”

More on gun control

• Lawmakers return to Washington today under pressure to break the decades-long inertia on the issue. (NYT)

• Thousands turned up for a gun show in Tampa, Fla. One seller of body armor said most of his sales had been to teachers, school administrators and “parents who are scared to death.” (NYT)

CreditCraig Frazier

A looming fight over changes in tax law

The rush by Republicans in Congress to overhaul U.S. tax law before the end of last year has complicated planning for individual taxpayers.

And things could grow more uncertain as fights are expected over the changes, The NYT’s Jim Tankersley reports.

Here’s Jeffrey C. LeSage, vice chairman for the Americas of KPMG’s tax practice:

This is anything but tax simplification. I don’t personally see us coming back to the rates that we’ve had, historically, on the corporate side. On the individual side, who knows?”

The Washington flyaround

• President Trump’s legal team is examining potential routes to provide testimony to the special counsel, including giving written answers to his questions, according to unnamed sources. (WSJ)

• The House Intelligence Committee has released a redacted Democratic memo rebutting claims by Republicans that top officials at the Justice Department and the F.B.I. abused their power in the Russia investigation. (NYT)

CreditJason Lee/Reuters

President Xi Jinping looks to stay in power indefinitely

The Chinese Communist Party announced that it intended to abolish term limits on the presidency.

The move has injected new uncertainty into international politics, NYT’s Jane Perlez and Javier Hernández report.

The ruling Communist Party’s decision to open a path to a third term for Mr. Xi heightened a sense of resentment in China among academics, lawyers, journalists and business executives. Many have watched warily as Mr. Xi has used his power to imprison scores of dissidents, stifle free speech and tighten oversight of the economy, the world’s second largest.

The plan could also exacerbate a tense relationship between Beijing and Washington, which is preparing plans to impose tariffs on Chinese imports and to limit Chinese investments in the U.S.

Critics’ corner

• Christopher Beddor of Breakingviews: “Opaque as it is, international companies and investment firms had grown accustomed to the rules of the Chinese political game as it has been played for two decades. It is rapidly evolving into something new. They should not brush this aside as mere politics.”

The China flyaround

• Li Shufu, the Chinese businessman who owns the Geely group, acquired a $9 billion stake in Daimler, which makes Mercedes-Benz cars and trucks. Forging ties with Daimler could be tough for Geely, writes Jeffrey Goldfarb of Breakingviews. And the money would have been far better spent on organic growth, Bloomberg Gadfly’s David Fickling argues.

• Regulators in control of Anbang indicated that they intend to hold onto the Waldorf Astoria, unnamed sources told the WSJ. But they are listening to offers for other hotels in Anbang’s portfolio.

• The challenge for those regulators: They must avoid a fire sale and contagion that could hit healthier financial institutions.

• China’s crackdown on outbound deals and heavy debt loads is colliding with pushback from American authorities citing national security concerns. The road from China to the U.S. appears to be largely closed for now, writes Brooke Sutherland of Bloomberg Gadfly.

CreditRob Pybus

The tech flyaround

• Tech leaders are envisioning a reinvention of the city. (NYT)

• Researchers and technology firms are looking at social media and smartphone use to see if the data reveal changes in physical and mental health. (NYT)

• Apple will start storing encryption keys for some iCloud customers in China, raising concerns with some privacy experts. (WSJ)

• In the push for self-driving cars, a variety of technology and automotive companies are pursuing efforts to create mapping systems, hoping to beat Google to the punch. (Bloomberg)

• Facebook and Google are struggling to contain posts falsely claiming that some survivors of the Florida school shooting were paid actors. (NYT)

• Russian spies hacked computers at the 2018 Winter Olympics and tried to make it appear that the intrusion was by North Korea, according to unnamed U.S. officials. (Washington Post)

CreditAbbey Lossing

Pushback against ‘Blockchain Bros’

Women always question if they’re qualified. But look at these clowns around us.

That’s Arianna Simpson, one of the relatively few women who were early cryptocurrency investors.

The world of virtual currencies and blockchain has been dominated by men, but female investors and entrepreneurs are trying to change that.

Revolving Door

• McKinsey has elected Kevin Sneader, the firm’s Asia-Pacific chairman, to lead the consultancy. (FT)

• Marianne Lake, JPMorgan’s chief financial officer, has emerged as a contender to succeed Jamie Dimon. (WSJ)

The Speed Read

• TCI Fund Management, run by the investor Christopher Hohn, and TPG-Axon Management have sued funds managed by the private-equity company IREO over a big Indian real estate bet that has failed to see much of the capital invested returned more than a decade later. (Barron’s)

• Deutsche Bank plans to sell a minority stake in its asset management business as part of an initial public offering next month. (Bloomberg)

• Saudi Arabia is making overtures to China and Russia for help in diversifying its oil-dependent economy. At stake is the Saudi Aramco public offering and the future of the kingdom’s economic overhaul. (NYT)

• Qualcomm said it believed it had made progress in takeover talks with its suitor Broadcom regarding regulatory and other issues. Qualcomm also urged Broadcom to negotiate further over the price of the deal, after having called previous offers an undervaluation. (Reuters)

• Investors are borrowing a record amount to buy stocks, which could lead to more volatile financial markets, analysts say. (WSJ)

• Volkswagen’s U.S. business has agreed to settle a lawsuit brought by more than 300 diesel vehicle owners over the carmaker’s emissions scandal. (Reuters)

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