Buffett says Berkshire investors could be hurt by takeover of Wesco

Warren Buffett said shareholders of his Berkshire Hathaway Inc. may have their financial interests harmed by the company’s planned stock-and-cash deal to take a 100% stake in Pasadena-based Wesco Financial Corp.

Using Berkshire stock would dilute investors’ holdings in exchange for more ownership in a firm that may have less growth potential, Buffett told Wesco Director Carolyn Carlburg in a Jan. 21 letter published Monday in a Berkshire regulatory filing. Berkshire, the top investor in Kraft Foods Inc., last year opposed the food maker’s plan to issue shares for an acquisition, saying the stock was “very expensive currency.”

Buffett rebuffed a request by Carlburg for a higher offer, according to correspondence between the two included in the filing. Wesco, which is led by Berkshire Vice Chairman Charles Munger and is 80.1% owned by Buffett’s firm, said last month it accepted a deal of about $550 million for the remaining stake and would seek shareholder approval. Wesco investors would have the option of taking cash or Berkshire stock in exchange for their shares.

“We regard the transaction as disadvantageous to Berkshire if a substantial number of Wesco shareholders elect to take Berkshire stock,” Buffett said in the letter. “That’s because I believe the prospects for Berkshire shares over the next 10 years to be considerably better than the prospects for Wesco shares.”

Buffett funded more than a third of last year’s $26.5-billion purchase of railroad Burlington Northern Santa Fe by issuing Berkshire shares. “I hate it,” Buffett said in an interview last year when asked about diluting Berkshire shares.

Berkshire has gained about 2.1% on the New York Stock Exchange in the last 12 months, compared with a decline of about 1.8% in Wesco. Omaha-based Berkshire trades at about 1.34 times its book value, a measure of assets minus liabilities, according to Bloomberg data. Wesco trades at its book value, the price that Buffett set as his target for the bid. Wesco shares rose 2 cents to $389 on Monday.

Buffett, 80, is seeking to simplify Berkshire’s holdings for an eventual change in leadership. The billionaire has led the company for four decades with the help of Munger, Buffett’s 87-year old business partner. Munger supported the buyout and said Jan. 18 that he doubted Berkshire would raise the bid, according to the filing.