What does Munger's death mean to Berkshire?

wallstreetcn ·  11/29/2023 16:08

Munger passed away, and Berkshire's stock price fell slightly. Buffett once said that Berkshire's stock price will rise the day after his death because it is expected that Berkshire will be split.

On the morning of November 28, local time, Charlie Munger passed away peacefully in a California hospital at the age of 99.

In 1978, Munger began serving as Berkshire's Vice Chairman. Over the next 45 years, Berkshire's market capitalization soared from 10 million US dollars to nearly 750 billion US dollars (about 5 trillion yuan), an increase of more than 75,000 times.

So what does Munger's death mean for Berkshire?

Some media think it probably won't have much impact, because Berkshire has been a showroom for stock company Buffett for a long time. The report reads:

Buffett, now 93, has been the company's leader since taking over Berkshire in 1965, and to this day, the keen Buffett remains a dedicated CEO.

Last year, Buffett said in an interview with the media that he would “always be there” for Berkshire.

By contrast, Munger is more like Buffett's adviser and adviser, and is not directly involved in the company's daily affairs.

Berkshire Class B shares fell 0.4% overnight to $360.05. News of Munger's death came out before the market closed at 4 p.m. EST, but the market did not respond much to this.

Analysts believe that when Buffett steps down as CEO and dies, Berkshire may undergo major changes.

Buffett's successor candidate Greg Abel is currently responsible for Berkshire's huge non-insurance business, and Ajit Jain is responsible for the insurance business. Abel and Jain have held their positions since 2018, and the scope of business that Abel is responsible for has continued to expand in recent years.

It is widely believed that Berkshire after the Buffett era may have Abel as CEO, and Jain will continue to be responsible for the insurance business. Ted Weschler and Todd Combs currently manage about 10% of Berkshire's $350 billion stock portfolio and are responsible for overseeing the entire investment business. Buffett's eldest son, Howard Graham Buffett, is expected to serve as chairman.

Buffett holds 15% of Berkshire's shares, but since almost all of these shares are Class A shares with super voting rights, he actually controls about 30% of Berkshire's voting rights.

Berkshire shares held by Buffett are worth about 118 billion US dollars. After his death, this portion of the shares will go into a trust fund managed by his three children.

The trust fund's holdings in the first few years after Buffett's death will effectively protect Berkshire from shareholder activists or external pressure. The trust fund will be gradually liquidated around 10 years after his death.

Buffett has stated that he believes Berkshire's stock price will rise the day after his death rather than fall as many people speculate. His opinion is that investors will immediately expect the company to split because they think the overall value after the spin-off will be higher than before the spin-off.

Given the trust's protections, Berkshire is likely to be shielded from outside pressure for some time after Buffett's death.

Also, Chris Davis, a member of the board of directors of Berkshire Hathaway and head of Davis Consulting, told the media earlier this year that the role of the board in the post-Buffett era would be to protect the company from activists and others.

“As for the future, every activist and investment banker would argue that in a world without Warren and Charlie Munger, Berkshire's unorthodox structure should not continue. I think Berkshire (its future) should be defended. Warren has collected a range of long-term assets that will generate cash flow for decades to come.”


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