OMAHA, Neb. – Billionaire investor Warren Buffett (search), founder of Berkshire Hathaway, said he was on the prowl this year for new companies after lamenting last year's failure to make multibillion dollar acquisitions that would boost its earnings.
Berkshire Hathaway Inc. (BRKA) is hunting acquisitions priced between $5 billion and $20 billion, CEO Buffett said in Berkshire's annual report.
In his 40th annual report, the man known as the "Oracle of Omaha" expressed dismay that he failed to buy more companies in 2004.
"My hope was to make several multibillion dollar acquisitions that would add new and significant streams of earnings to the many we already have," the 74-year-old wrote in the report, released Saturday. "But I have struck out."
But Buffett did have a consolation prize. Berkshire Hathaway posted a gain in net worth of $8.3 billion in 2004, which increased the per-share book value — assets minus liabilities — by 10.5 percent. That was keeping nearly in line with the S&P 500, which grew by 10.9 percent. That latter growth meant a "remarkable year for the stock market" because it came close to the S&P 500's annual return of 11.2 percent, he said.
In 2003, the company saw a 21 percent increase in book value while the S&P 500 grew by 28.7 percent.
Buffett and vice chairman Charlie Munger are going to have to work hard to find new assets, said Steve Kaplan, a professor at the University of Chicago Graduate School of Business (search). Like the past year, 2005 will prove a seller's market, Kaplan said, adding that activity in mergers and acquisitions will remain heavy.
"He won't find anything this year either," Kaplan said. "Since he likes to buy things cheap, it's harder to find."
While Berkshire's profit fell 10 percent from 2003 to $7.31 billion, its fourth-quarter results were strong, with earnings climbing to $3.34 billion, up some 40 percent from the same period in 2003.
Berkshire ended the year with $43 billion of cash equivalents, something Buffett called "not a happy position." In 2003, Berkshire had nearly $36 billion and the year before that, about $12.7 billion.
Berkshire Hathaway shares rose $800, or 0.9 percent, to $90,100 on the New York Stock Exchange. The stock has been trading at a 52-week range of $81,150 to $95,650.
Buffett was mum on the subject of an investigation of alleged bid-rigging and price-fixing in the insurance industry by New York Attorney General Eliot Spitzer (search). Buffett received a subpoena in January and has said he would cooperate. His insurance holdings include auto insurer GEICO.
Buffett has made himself the world's second richest man — and many of his stockholders into millionaires — by buying companies in a wide variety of industries including insurance, furniture, restaurants, candy and newspapers. But he wants more for the holding company.
Buffett laid out his requirements for a potential company to take over. He wants it friendly, with management in place and an asking price known at the outset. He prefers to pay, of course, in cash.
Kaplan found it noteworthy that Buffett expressed approval for two federal reforms that have affected how businesses run — namely the establishment of whistleblower hot lines and allowing boards of directors to meet without CEOs present.
Buffett said he's sat on 19 boards and having a CEO absent — especially when the board was contemplating a change in that position — surely would have meant for more efficient business.
And whistleblower lines, while many of them referring to the hygiene of co-workers, Buffett said, have alerted him to problems that would have otherwise gone unknown.
"Berkshire would be more valuable to me today if I had put in a whistleblower line decades ago," Buffett wrote.