{"id":195798,"date":"2010-01-18T13:11:00","date_gmt":"2010-01-18T18:11:00","guid":{"rendered":"tag:blogger.com,1999:blog-3087194156628161158.post-1082209130771292994"},"modified":"2010-01-18T14:26:41","modified_gmt":"2010-01-18T19:26:41","slug":"wall-street-journal-berkshire-nears-smaller-baby-bs","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/195798","title":{"rendered":"WALL STREET JOURNAL: Berkshire Nears Smaller Baby Bs"},"content":{"rendered":"

JANUARY 18, 2010, 2:13 P.M. ET<\/span><\/p>\n

By SCOTT PATTERSON<\/span> <\/h3>\n

Warren Buffett<\/a> is likely about to orchestrate one of the biggest changes the financial structure of his company has seen in years.<\/p>\n

Berkshire Hathaway<\/a> Inc. is widely expected to approve a 50-to-1 share split of its Class B shares on Wednesday, a move tied to its planned purchase of the railroad giant Burlington Northern Santa Fe<\/a> Corp.<\/p>\n

With the split, trading volume will likely increase, and that could attract a new group of bigger and faster-trading investors. The B shares closed Friday at $3,247, a lofty price that limited the kind of investors who bought the stock to mostly those with a long-term performance view.<\/p>\n

The price of the stock will be about $65 after the split. There will be no change to the more exclusive Class A shares, which closed at $97,500 a piece Friday.<\/p>\n

About 36,000 B shares trade a day, on average. By comparison, about 6.4 million shares of International Business Machines<\/a> trade a day. Only about 1,000 A shares change hands a day.<\/p>\n

Mr. Buffett in 1996 introduced the B shares, known “Baby Bs,” because some small investors unable to buy Berkshire’s high-priced shares were investing in funds that tried to mimic his investing strategy.<\/p>\n

Mr. Buffett famously quipped in a press release at the time that neither he nor Berkshire Vice Chairman Charlie Munger would purchase B shares, which don’t have voting rights, “nor would they recommend that their families or friends do so.”<\/p>\n

A new lower share price would mean the B shares could be eligible for inclusion in the Standard & Poor’s 500-stock index. Standard & Poor’s has passed on the stock in the past because it “is not sufficiently liquid,” said David Blitzer, chairman of the S&P index committee.<\/p>\n

If the B shares become part of the S&P 500, that will require index funds and other portfolio managers who track the index to purchase the stock, potentially giving it a one-time boost. The B shares have slipped 2% since the announcement of the Burlington deal in early November.<\/p>\n

Berkshire agreed in November to purchase the 77% of Burlington it didn’t already own by using a mix of cash and stock, and Mr. Buffett described the investment as an “all-in wager on the economic future of the United States.” He agreed to split the B shares so that smaller Burlington shareholders who want the tax benefit of maintaining an equity investment could accept Berkshire shares instead of cash.<\/p>\n

The share split took some Berkshire watchers by surprise. Mr. Buffett has long been a critic of share splits. In a 1983 shareholder letter<\/a>, he wrote that a share split “would attract an entering class of buyers inferior to the exiting class of sellers.” In his 1992 letter<\/a>, he wrote that “modest degradation would occur” if the company were to split its stock, because more short-term investors could buy it.<\/p>\n

Despite the magnitude of the move, it’s likely to have little impact on the overall financial health of Berkshire, analysts said. Says Morningstar analyst Bill Bergman, who tracks Berkshire: “In terms of thinking about the value of Berkshire, I don’t see it as a big issue.”<\/p>\n

Still, there is one perquisite some might find attractive: Class B shareholders can attend Berkshire’s annual meeting in Omaha, widely known as the Woodstock of capitalism and which last year attracted about 35,000 people.<\/p>\n

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