(BRKA) Berkshire Hathaway’s Buffett Closes Wesco Deal

Last Friday, Berkshire Hathaway Inc. (BRKA)(BRKB) chairman and chief executive officer Warren Buffett announced that the company had successfully acquired the remaining 20% of Wesco Financial Corp., a company run and controlled by Berkshire’s vice-chairman Charles T. Munger.

Wesco held a special shareholder meeting on Friday near its Pasadena, California, headquarters to seek approval for the impending acquisition. Much to the company’s delight, the majority of the shareholders (93%) voted in favor of the transaction.

Wesco shareholders’ will be compensated with a combination of cash and Class-B shares (Buffett uses Class-B shares for acquisitions) based on the book value to the acquiring company, which was worked out at $385 per share. Overall, the transaction has cost Berkshire $545.4 million in exchange for 1.4 million shares.

Wesco has been 80.1% owned by Blue Chip Stamps (“Blue Chip”), a wholly-owned subsidiary of Berkshire since 1983. Thus, Wesco and its subsidiaries are controlled by Blue Chip and Berkshire; or put simply, they are under the control of Buffett, who owns 24.3% of Wesco’s stock.

Munger regularly consults with Buffett on Wesco’s investment decisions, major capital allocations, and the selection of chief executives to head each of its operating businesses.

Wesco’s activities can be categorized into three business segments — insurance, furniture rental and industrial. The insurance segment consists of the operations of Wesco-Financial Insurance Co. and Kansas Bankers Surety Co. The furniture rental segment consists of the operations of CORT Business Services Corp, while the industrial segment comprises Precision Steel’s service center and industrial supply operations. Wesco also holds shares in some of the same companies as Berkshire, like Coca-Cola, Kraft, Procter & Gamble, and Wells Fargo. Wesco continues to have a strong consolidated balance sheet, with high liquidity and relatively little debt.

Buffett intends to convert Wesco into a wholly-owned subsidiary of Berkshire, in order to deploy about $28 billion at Berkshire and also to simplify operations at Wesco. Besides, Munger is already 86 and would not be able to act as Wesco’s chairman for long.

Berkshire houses a diverse array of over 80 businesses that are categorized into –Insurance, Regulated Utility, Manufacturing, Service & Retail, and Finance & Financial Products. Some of the companies, which run these businesses, are 100% owned, some are owned up to 80%, and other positions merely involve big blocks of stocks.

Berkshire posted weak first quarter 2011 results with earnings per share of $1.64, marking a 49% year-over-year drop. The deterioration was caused by a decline in operating earnings from its insurance businesses that suffered high catastrophe claims.

The second quarter results are also expected to dent the company’s earnings on the back of a heavy catastrophe season.

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