Buffett gives his successor a huge cash pile and many questions
Warren Buffett chose the final minute of his 60th shareholders meeting and stopped his much-awaited announcement.
Buffett, 94-year-old architect, face Berkshire Hathaway Inc. announced that the rally will be his last as head of a company that has built up from a humble beginning to one of the most valuable companies in the world. A few feet away, Greg Abel, an energy executive considered the crown prince of Omaha, didn’t even know that his time had come.
Buffett hands the key to the $1.2 trillion giant and directs a portfolio of such stocks apple Inc. and American Express Co. regularly takes over $10 billion in operating profit quarterly, in addition to its collection of insurance, energy, rail and consumer businesses. The 62-year-old also inherits a lot of questions, starting with what Buffett will do with Berkshire’s nearly $350 billion cash pile after he’s mostly loaded with the market for the past few years.
Shareholders will want to know how Abel changes the Lean C suite with the company’s peculiarity, whether Abel brings different risk tolerances and industry preferences, and whether the company remains the initial call for companies that require a big check and confidence vote. They will even wonder about the future of the Annual Meeting itself, the so-called Woodstock for capitalists who have drawn acolites from around the world based on the wisdom and wit of Buffett and his late business partner Charlie Munger.
“He has certain magic so people love Warren,” said Alice Schroeder, who wrote.Snowball: Warren Buffett and the Business of Lifethe billionaire biographies are considered a must-read for his admirers and helped to promote his fame. “It’s almost impossible to replicate that.”
While it’s rare to expect Abel to be in the spotlight with the celebrities on Buffett’s Main Street, the longest-serving CEO departure on the S&P 500 also opens deeper doubts about what pressures will endure in his absence someday.
Berkshire has not paid dividends and has recently begun buying stocks.
And Berkshire, with around 400,000 employees, has reached this weight, and several observers have debated for years whether it could break up after Buffett leaves.
Abel argues that Buffett follows the principles laid out in investing and managing risk. And Buffett says he will remain a major shareholder.
“That means investors will have to be confused. Will Berkshire Hathaway stock deserve Buffett’s premium when Buffett is no longer there?” said Cathy Seyfert, an analyst with CFRA research. “There’s a laundry list that some institutional investors have, including cash dividend payments and more regular capital allocation programs.”
Energy Deal Maker
Abel joined Berkshire Hathaway through the acquisition.
The Canadian-born executive, who began his career as an accountant for PricewaterhouseCoopers, joined geothermal power company Calenergy in 1992 as a controller.
David Sokol, then CEO of Calenergy, saw talent in Abel with the ambition to build a business through acquisitions. In 1996 he sent Abel to run the utility company in the UK, where the company purchased it. Calenergy signed a deal in 1998 to buy Iowa utility MidErican Energy, and adopted the name.
Berkshire soon took control of stock, allowing the company to steal the pipeline in the wake of Enron’s bankruptcy and utility companies in the northwest of the US.
In 2008, Sokol took on a broader role in Berkshire, and Abel was appointed CEO of Central America. According to Sokol, Buffett had reserved whether he could find a deal and negotiate it.
“He was involved in all the acquisitions we made and he was effectively involved in some acquisitions himself, so I knew the answer,” Sokol said in a 2014 interview. “I don’t think Warren and some of our board members were certain they hadn’t experienced it with him.”
Within a few months, Abel showed his chops. In September 2008, MidAmerican agreed to pay around $4.7 billion for the purchase Constellation energy After the Baltimore-based utility company lost half its market value in a week. Berkshire has earned more than $1 billion from the split fees and profits on its investment after Constellation turned to another suitor.
Abel’s other deals lasted a long time. In 2013 he purchased NV Energy, Nevada’s largest utility, and the following year Abel agreed to buy a power transmission company in his native Alberta. The MidAmerican was renamed Berkshire Hathaway Energy in 2014, further adjusting the reputation and value that the brand stood for during its decades of career.
The expansion created a vast US utility company, maintaining lighting in states such as Iowa and Nevada, and continuing to operate a natural gas pipeline that runs around 14,200 miles nationwide from Texas to Michigan.
This allowed him to gain the reputation of a skilled utility executive and ultimately earned Buffett’s trust. In 2018 he was promoted to vice-chairman and expanded his oversight to all of Berkshire Hathaway’s uninsured business. This is the authority to exert railway operator BNSF on the candy of iconic sweet maker Sea.
He was announced as a successor in 2021. After Munger resigned from Buffett at Berkshire’s annual meeting, he slipped at Berkshire’s annual meeting to keep the conglomerate culture intact.
Since his promotion, operating profit – excluding several other items – has increased nearly $22 billion from around 27% last year.
Now, what we haven’t seen yet is his investment insight. Todd Combs and Ted Weschler were hired in 2010 and 2011 to manage Berkshire stock and bond holdings, respectively. Combs has since monitored the insurance unit GEICO. Both advise Buffett on potential acquisitions and can do the same for Abel.
“Greg is a business leader and he’s not in charge of investment,” Schroeder said. “It’s him and it’s going to be one of the board’s biggest challenges.”
He handed out nearly $350 billion in cash storage for investment, and executives have no track record of stock picking. At a meeting on Saturday, he was asked about his capital allocation strategy when he took over. He called the cash pile “huge assets” and pledged continuity. However, his approach to answers was not something that Berkshire regulars became accustomed to.
“He struggled with that question,” said Berkshire Hathaway shareholder Cole Smeade.
“Like Charlie and Warren, he’ll look back at the time before his life and talk about what he’s experienced in investing,” Smeade said. “He didn’t.”
This story was originally introduced Fortune.com