Nobody guessed Warren Buffett's next elephant - Omaha.com
Published Sunday, February 17, 2013 at 1:00 am / Updated at 11:02 pm
Warren Watch
Nobody guessed Warren Buffett's next elephant

The winner of our “pick the elephant” contest is ...

Nobody.

Of the 51 entries received via email and snail mail, some were agonizingly close but none actually predicted that Warren Buffett would buy H.J. Heinz Co., the $23 billion deal announced last week.

The lack of a winner illustrates the difficulty of predicting Buffett's actions. The contest, suggested by a reader, started Jan. 6 and challenged our print and online audience to guess the next $5 billion-plus purchase by Berkshire Hathaway Inc., the Omaha-based investment company Buffett heads.

Berkshire's share of the purchase, $12.12 billion, falls into the category of the big purchases Buffett seeks. He uses a hunting metaphor, saying his “elephant gun” is loaded with cash and “my trigger finger is itchy.”

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The contest ruled out repurchases of Berkshire stock and “bolt-on” acquisitions by existing Berkshire companies. The prize, a World-Herald/Berkshire messenger bag, will go unclaimed until the next contest, whatever that may be.

Among the closest guesses, tastewise, were food companies with good brand names: Smuck- ers, Hershey's, Hostess and Mars.

In announcing the deal, Buffett mentioned Heinz's “strong brand equities” and tasty products among the reasons he agreed to partner with 3G Capital of New York City in the purchase.

Our contest entries listed a wide range of potential targets with familiar names, including insurance (Chubb), railroads (Union Pacific, CSX), retailers (Costco, Walmart, Walgreens, Target) and industrials (General Motors, General Electric, Boeing, U.S. Steel, John Deere).

One suggested Buffett buy the U.S. Capitol and “fire all those overpaid underperformers” to recover its upside potential. Another suggested buying Nebraska farmland.

One entrant came close in a reverse sort of way, since the financial backers of 3G Capital include some of the wealthiest men in Brazil. “You have to think big to do big,” the reader wrote. “Warren should buy Brazil.”

Interest in Time?

The Heinz deal came a day after rumors that Buffett was interested in buying Time Inc.

Advertising Age made the case, noting that Buffett has been buying newspapers lately (like magazines, they're printed on paper) and that he has worked in the past with Byron Trott, who heads BDT Capital, the investment company supposedly interested in the Time properties.

Buffett reportedly had talked in the past about buying Time, AdAge said, noting that he has written articles for Fortune, a Time publication, and that Fortune editor-at-large Carol Loomis recently compiled the magazine's articles about Buffett into a book.

The Wall Street Journal also reported that Meredith Corp. of Des Moines is interested in acquiring most of Time's magazines, not including Time, Fortune or Sports Illustrated.

Betting on energy

Berkshire's MidAmerican Energy Holdings has invested about $11 billion in wind, solar, geothermal and hydropower capacity, a huge bet on renewable energy, according to the industry publication Electric Utility Week.

MidAmerican's generating power now totals 5,300 megawatts, enough to power more than 5 million homes. Besides wind generators in Iowa, the properties are mostly in California and Arizona deserts, reporter Jeffrey Ryser wrote.

MidAmerican sells the energy through long-term contracts and benefits from federal income tax credits and from cash grants for projects in California, where utilities must meet renewable energy standards.

The tax credits have lowered MidAmerican's income tax rate to about 15 percent from the standard corporate rate of 35 percent. About 30 percent of MidAmerican's capacity in Iowa is from wind turbines.

No on 'Buffett Rule'

The “Buffett Rule” is a “narrow-sighted approach to tax policy,” the International Franchise Association said last week, opposing Buffett's idea that people with incomes of more than $1 million a year should pay at least 30 percent in federal taxes.

The association was reacting to a Senate bill filed last week proposing the change.

Such a policy by itself, without overall reform of the tax code, would erode confidence in franchise businesses and potential investors, the association said.

“What franchise business owners need is comprehensive tax reform that simplifies the tax code, lowers the overall rate for both corporations and individuals and eliminates the complexities of existing credits and deductions,” the group said.

The Omaha World-Herald Co. is owned by Berkshire Hathaway Inc.

Contact the writer: 402-444-1080, steve.jordon@owh.com, twitter.com/buffettOWH

***

Have a question for Steve Jordon about the Oracle of Omaha? Submit your questions now, then join Steve at 11:30 on Tuesday to discuss the latest news about Warren Buffett.

Contact the writer: Steve Jordon

steve.jordon@owh.com    |   402-444-1080    |  

Steve covers banking, insurance, the economy and other topics, including Berkshire Hathaway, Mutual of Omaha and other businesses.

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