Buffett sheds tech aversion with big IBM investment (Reuters)

(Reuters) – Warren Buffett has always made his distaste for technology investments clear, but on Monday he changed his ways in spectacular fashion.

The Berkshire Hathaway chief executive said he has bought nearly $11 billion of International Business Machines Corp stock in the last eight months, building a roughly 5.5 percent stake that potentially makes him the largest shareholder in the company.

It was a surprise reversal for Buffett, who has always said he would not invest in technology because he largely did not understand it. But in an interview on cable television network CNBC, Buffett said he was struck by IBM's ability to retain corporate clients, which made it indispensable in a way that few other services are.

"It's a company that helps IT departments do their job better. It is a big deal for a big company to change auditors, change law firms" or to switch to a new technology vendor, Buffett said.

"I don't know of any large company that really has been as specific on what they intend to do and how they intend to do it as IBM," said Buffett, who teased CNBC's anchors for a few minutes with a guessing game about what the major investment was before unveiling the IBM news.

IBM shares, which have a market value of about $220 billion, were up 0.2 percent to $187.79 in afternoon trading. Earlier they hit $189.84, nearing the all-time high of $190.53 that the stock touched in mid-October.

Buffett, known as one of the best value investors of all time, appeared to have come to IBM late in the game -- a year ago the stock was a third lower than it is now. Buffett himself said he should have paid more attention to IBM five years ago.

Yet technology analysts said he had still gotten a good deal.

"Maybe he could have gotten a better price ... but if you look at Warren Buffett's investment policy I would assume this is a long term investment," said Collins Stewart analyst Louis Miscioscia. "This is not your father's IBM; the management has done a good job of cost control, returning cash to shareholders."

CHANGE OF PLANS

Though it seems like a contrarian move, one long-time Berkshire investor speculated that Buffett was buying IBM for its services business rather than its technology platform.

"It's going to be one of the four or five 'generals' in the portfolio," said Steve Check, chief investment officer of Check Capital Management, a California firm.

Another long-standing Berkshire shareholder said the investment was also a global play.

"More confirm(ation) that he sees international as more important," said Michael Yoshikami, chief executive of wealth manager YCMNET Advisers, which manages about $1 billion and holds Berkshire shares.

The investment fits with Buffett's desire to make big bets. Earlier this year, in his annual letter to investors, he joked about having a loaded elephant gun ready to make big deals.

He has followed through on that, buying chemicals company Lubrizol, investing $5 billion in Bank of America Corp and taking the IBM position.

Though Berkshire started buying IBM shares in March, Buffett's comments suggested the firm did not cross reporting thresholds on the investment until the third quarter, which let him keep the stake secret until Monday.

Buffett has also previously asked for, and received, the right to keep some investments temporarily confidential on the grounds that, given his notoriety, if his trades were to be known, masses of investors might try to pile in as well.

The IBM stake was so confidential, in fact, that the company had no idea Buffett was investing in it until he disclosed that he had bought 64 million shares on TV on Monday. An IBM spokesman declined to comment.

According to Thomson Reuters data, Buffett's 5.5 percent position in IBM would tie him with State Street Corpinvestment management affiliate State Street Global Advisors for the largest stake in the company.

During the third quarter, IBM shares traded in a range of $157.14 to $185.61, suggesting that no matter when Buffett bought, he is still up on his investment at least $160 million.

The median analyst price target for the stock is $200, with 14 of 28 analysts rating it a "strong buy" or "buy" and the rest rating it a "hold," according to Thomson Reuters data.

NOT BUYING EUROPE

One thing Buffett is not buying is European banks.

Buffett comes up whenever there is talk of a large European bank needing to raise capital, particularly in the current environment of writedowns on sovereign debt.

But he told CNBC that he would need to understand European banks better before investing, and that he has not yet seen an investment opportunity there in which he wants to take part.

The "Oracle of Omaha" and Berkshire Hathaway chief executive said he expects Europe's economy to show improvement 10 years from now, but getting there will be difficult.

In a three-hour interview, Buffett also disclosed that he was interviewed by the U.S. Securities and Exchange Commission in June about David Sokol, his former heir apparent who left Berkshire amid scandal earlier this year.

Sokol left the company after it emerged he had bought shares in Lubrizol while trying to convince Buffett to acquire it.

Buffett said he had an informal interview with the SEC, which was not a deposition and was not transcribed by a court reporter. He told CNBC the SEC had questions it wanted answered, and he and Berkshire were cooperating.

The Sokol episode turned into a major scandal for Berkshire earlier this year, with Buffett conceding at the company's annual meeting that he had handled the matter poorly.

(Reporting by Ben Berkowitz in New York, additional reporting by Nicola Leske in New York and Jim Finkle in Boston; Editing by Tiffany Wu and Gerald E. McCormick)

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Warren Buffett picks another little-known successor (Reuters)

NEW YORK/BOSTON (Reuters) – Warren Buffett advanced his succession plan on Monday by naming Ted Weschler, a low-profile hedge fund manager who has produced out-sized returns in the last decade, to help manage the investments of Berkshire Hathaway Inc.

Weschler, 50, will start at the company early next year and work with Todd Combs, who joined Berkshire last year, to manage its equity portfolios. Buffett, 81, has said he might also bring in a third manager, but meanwhile he continues to oversee the lion's share of the company's $52.36 billion in U.S. equities himself.

Weschler, like Combs before him, has succeeded while keeping a low profile far from the canyons of Wall Street. The Charlottesville, Virginia-based money manager delivered total gains of 1,236 percent over the last 11 years, according to investors.

As of June 30, his Peninsula Capital Advisors had long positions in about $2 billion worth of stock, according to regulatory filings. Combs was managing about $400 million when he was hired.

Since Combs was hired, Buffett has made clear there would be more people added to the investment team to replace him eventually. When and how many, however, have been open questions that have weighed on Berkshire's stock, some analysts following the stock have said in recent weeks. Some investors say Berkshire shares are currently at their most undervalued in a generation.

A number of Buffett's best-known biographers, as well as prominent fund managers including Mario Gabelli, all told Reuters Insider they were not familiar with Weschler or his work. The same was true when Combs was appointed last year.

Moments after one of the biggest personnel mysteries in finance was lifted and Weschler was named as one of a likely trio of heirs to Buffett as managers of Berkshire's investment portfolio, he kept to his usual routine. He was at his desk at Peninsula -- the hedge fund he founded in Charlottesville, Virginia, in 1999 -- dialing investors, his receptionist said.

SECRET LUNCHES

Weschler's interest in Buffett, who is both chief executive of the ice-cream-to-insurance conglomerate and its money manager, has been growing for some time.

According to journalist Carol Loomis, a long-time friend of and ghost-writer for Buffett, Weschler paid millions of dollars to dine with the "Oracle of Omaha" twice in the last two years.

Unlike many who bid to have the annual charity lunch with Buffett to benefit anti-poverty group Glide, Weschler insisted on anonymity -- wanting his name to be kept out of the headlines and requesting a change of venue from the New York steakhouse where the lunch is usually held. Instead, Weschler, who bid $2.63 million, met Buffett on his home turf in Omaha.

Over the last years, pressure has mounted on Buffett to put a succession plan into place for the day he will no longer run the company. Buffett's roles of investment manager will be split after he retires; the names on the CEO succession list are secret, however.

Weschler has overseen a very concentrated portfolio with Direct TV, DaVita, which runs kidney dialysis centers, and Liberty Media, ranking among his biggest and most recent holdings.

In total, he held fewer than a dozen publicly traded U.S. stocks at the end of the second quarter, according to his most recent regulatory filing. He is not required to list stocks he may be shorting or otherwise betting against.

Weschler earned an undergraduate degree in economics from the Wharton School at the University of Pennsylvania, where Buffett began his own undergraduate education decades ago.

Before starting his stock-picking career in Virginia, Weschler worked at specialty chemicals and materials company W.R. Grace, where he at one time was assistant to the vice chairman.

The path for Weschler to join Berkshire was laid at this year's lunch when Buffett pitched the idea of a move to Omaha, Buffett told Loomis. "I very much wanted him to do it, but I didn't expect to get very far with the idea," Buffett said.

"Ted will no doubt make a lot of money at Berkshire. But he was already making a lot of money with his fund -- you can get an idea of that from the size of his (charity) bids -- so money wasn't a reason for him to come."

In Charlottesville, a city one-quarter the size of Omaha, Weschler and his wife have supported a number of charities from helping sponsor a youth film festival to donating to one that builds structures for communities in need.

(Editing by Lisa Von Ahn, Maureen Bavdek and Steve Orlofsky)

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Stop coddling the super-rich: Buffett (Reuters)

BANGALORE (Reuters) – Billionaire Warren Buffett urged U.S. lawmakers to raise taxes on the country's super-rich to help cut the budget deficit, saying such a move will not hurt investments.

"My friends and I have been coddled long enough by a billionaire-friendly Congress. It's time for our government to get serious about shared sacrifice," The 80-year-old "Oracle of Omaha" wrote in an opinion article in The New York Times.

Buffett, one of the world's richest men and chairman of conglomerate Berkshire Hathaway Inc , said his federal tax bill last year was $6,938,744.

"That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income - and that's actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent," he said.

Lawmakers engaged in a partisan battle over spending and taxes for more than three months before agreeing on August 2 to raise the $14.3 trillion U.S. debt ceiling, avoiding a U.S. default.

"Americans are rapidly losing faith in the ability of Congress to deal with our country's fiscal problems. Only action that is immediate, real and very substantial will prevent that doubt from morphing into hopelessness," Buffett said.

Buffett said higher taxes for the rich will not discourage investment.

"I have worked with investors for 60 years and I have yet to see anyone - not even when capital gains rates were 39.9 percent in 1976-77 - shy away from a sensible investment because of the tax rate on the potential gain," he said

"People invest to make money, and potential taxes have never scared them off."

(Reporting by Santosh Nadgir; Editing by David Holmes)

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Buffett unit offers $3.2 billion for Transatlantic (Reuters)

NEW YORK (Reuters) – A unit of Warren Buffett's Berkshire Hathaway Inc made a $3.24 billion buyout offer for Transatlantic Holdings Inc, topping two existing rival bids for the reinsurer.

Transatlantic's board said on Sunday it would "carefully consider and evaluate" the $52-per-share offer by Berkshire unit National Indemnity Co.

Berkshire has given the reinsurer time until the close of business on Monday, August 8, to make a formal response to the offer.

The news came just days after Berkshire reported a larger second-quarter profit. On Friday, one analyst said the conglomerate had to find ways to start spending its $47.89 billion cash pile in order to grow.

Buffett, often called the "Oracle of Omaha," has talked about his desire to make more insurance acquisitions if he could find strong companies with competitive advantages.

"It would appear that given depressed markets they see an opportunity here," said Michael Yoshikami, president of YCMNET Advisers, a California wealth manager and Berkshire shareholder.

"Given the short time frame, Transatlantic has been given to respond, they are looking to press this on a short time frame; I don't sense a bidding war here," Yoshikami said.

Buffett's bid tops two rival offers already put before Transatlantic.

Transatlantic has an agreement to be bought by Allied World Assurance Company Holdings Ltd in a deal currently worth $44.22 per share, or $2.75 billion.

Validus Holdings Ltd, meanwhile, has launched a hostile bid for Transatlantic, with a proposal currently worth $46.36 per share, or $2.89 billion.

Buffett's bid values Transatlantic's shares at $52 apiece, a 15 percent premium to Friday's closing price of $45.24 on the New York Stock Exchange.

On Sunday, Transatlantic's board backed its recommendation of the agreement with Allied World and advised shareholders to await the board's decision regarding the Buffett proposal before taking any action.

Goldman, Sachs & Co and Moelis & Co LLC are acting as financial advisers and Gibson, Dunn & Crutcher LLP is acting as legal counsel to Transatlantic.

THE FIGHT IS ON

Allied World and Validus have been canvassing shareholders to drum up support for their proposals.

Allied World has been making the case that its deal with Transatlantic would save money and create a company with a better risk profile, two sources told Reuters last month.

It says Transatlantic shareholders also would get a specialty insurance business with their plan, while the company would double down on reinsurance in the rival offer.

Validus has argued that its offer was still worth more than Allied World's, a third source told Reuters in July.

It was also raising questions about the industrial logic of the rival deal, arguing that Allied World's specialty insurance business competes with many reinsurance clients of Transatlantic, according to the source.

Validus is digging in for a long battle, as it did two years ago when it won a months-long bidding war for Bermuda reinsurance rival IPC, the source said.

(Reporting by Dhanya Skariachan, Paritosh Bansal, Ben Berkowitz and Tom Hals; Editing by Maureen Bavdek and Gunna Dickson)

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