Berkshire Hathaway to Buy Back Shares

As I’ve said many times, I’m not a fan of share buybacks. My view is that companies ought to focus on their businesses and not waste their time trying to financially engineer a higher share price.

When in doubt, excess cash flow should go to investors in the form of dividends. If investors then wish to buy more stock, that’s their decision. I hope that someday the tax fund is more favorable to that decision. I also think companies often use share buybacks to mask the extent to which they’ve diluted their stocks with executive stock options.

As such, I was surprised to see that Berkshire Hathaway ($BRKA) has announced a share repurchase. The stock has been hit hard lately so there’s been more pressure on the company to do something. Berkshire has said that it will spend no more than a 10% premium of book value on share repurchase of the A and B shares.

Berkshire is currently sitting on a war chest of $38 billion. Sometimes I wonder if having too much cash is a problem for companies. It’s as if the giant piggy banks distort their vision and they think they have to spend it all. This leads to poor acquisitions or countless share repurchase programs. The only benefit I see is that they generate positive press releases.

This repurchase is an interesting and surprising move coming from Buffett. He has said that it’s harder for him to see promising acquisition candidates given Berkshire’s size. The company said it won’t have its cash position fall below $20 billion.

The shares are up about $5,000 today.

Posted by on September 26th, 2011 at 10:17 am


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