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A Few Pre-Easter Updates
With the holiday weekend fast approaching, I thought it might be a good time to check back in on some of the topics that I’ve written about over the past several months to see if there have been any new developments.
Mostly, it’s a chance for you to point and laugh at my failed prognostications. Please be kind.
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Elon Musk vs. Twitter
It looks like Elon Musk, Twitter’s largest shareholder, won’t be joining the company’s board of directors after all. And, for those hoping Musk will really shake things up at the social media giant, that’s probably a good thing.
As part of the Twitter board, he would have been prohibited from increasing his stake in the company beyond 14.9%. Now, the door is open to go much higher.
Elon himself has mostly remained quiet since news broke about him not joining the board, though this could just be the calm before the storm.
Possibly even a prelude to a hostile takeover…
It doesn’t matter where on the philosophical spectrum you fall on the subjects of Musk, Twitter, regulated speech, free expression, capitalism, wealth, or business in general. You have got to be rooting for this [hostile takeover] to happen. Just for the drama. For the sheer audacity of it. The pure spectacle of a self-made billionaire/entrepreneur/innovator/visionary/eccentric weirdo joining a social media platform, dominating it for years, not liking the direction it’s going, buying in, alienating large segments of the staff, then launching a hostile takeover. It would be THE business story of our times.
[Twitter] could be better than it is. Or much, much worse. But one thing Elon Musk pulling off a hostile takeover of Twitter and reworking it in his own image most definitely will not be, is boring.
[Update: Shortly before sending this post, Elon Musk offered to buy 100% of Twitter and take it private. Read more about it here.]
DJCO Cuts Alibaba
Charlie Munger’s ultimate buy-and-hold portfolio is a-changing. In a new 13F filing this week, the Daily Journal Corp. revealed that Munger chopped his stake in Alibaba in half during Q1 2022.
DJCO now owns 300,000 shares of the Chinese e-commerce giant, down from 602,000 shares a quarter ago. Alibaba has fallen on hard times as concerns over China’s tech crackdown and possible de-listing on U.S. exchanges continue to take a toll on the stock. In all, BABA is down 68% from its October 2020 peak.
No one knows for sure what led to Munger’s change of heart — especially in a portfolio known for its hands-off approach — but Joseph Carlson raises a few interesting points in the below video. Particularly his guess that this could be either tax-loss harvesting or even an under-the-radar “move” of these shares to the Hong Kong exchange. That would not show up in DJCO’s 13F, while still allowing the company to sidestep any de-listing concerns.
Again, the lesson seems clear: Don’t coat-tail. Even if the investor is Charlie Munger.
Berkshire Hathaway x Alleghany Corp.
Two weeks ago, I wrote about how digging through old annual reports can be fun — and, since then, I learned the same can be said of proxy statements.
The proxy for Berkshire Hathaway’s $11.6 billion acquisition of Alleghany Corp. revealed some interesting behind-the-scenes info about how this whole deal came together (and Warren Buffett’s negotiation style).
On the evening of March 7, 2022, [Alleghany CEO] Mr. Brandon and Warren E. Buffett, Chairman and CEO of Berkshire, met for dinner in New York City. Mr. Brandon … had sent Mr. Buffett a copy of the annual letter to [Alleghany’s] stockholders, which accompanied [Alleghany’s] annual report. Following receipt of the annual letter from Mr. Brandon, on February 25, 2022, Mr. Buffett suggested that they get together in New York or Nebraska.
After some casual conversation at the March 7 dinner meeting, Mr. Buffett conveyed Berkshire’s interest in acquiring [Alleghany] for $850 per share of common stock in cash, less any fee payable to [Alleghany’s] financial advisor, if the [Alleghany] Board were interested in pursuing a transaction.
On March 12, Brandon and Alleghany chairman Jefferson Kirby met with Buffett in Omaha to hammer out the details.
Mr. Kirby asked Mr. Buffett to increase the price by increasing the $850 price per share or potentially by eliminating the deduction to the merger consideration for the fee payable to the financial advisor. Mr. Kirby also asked Mr. Buffett if he would consider using Berkshire’s stock as a portion of the deal consideration. Mr. Buffett reiterated the terms of his original offer, indicating firmly he did not intend to change his position on those points.
FYI — Alleghany’s 25-day “go-shop” period ends today. This should be done and dusted soon.
Consumer price inflation rose 8.5% from a year ago
Producer prices spiked 11.2% from a year ago
Some troubling signs out of Meta Platforms…
We all know that 2022 has not been kind to the company formerly known as Facebook. But, even though it’s been one of the S&P 500’s worst performers, Meta entered the year with $38.79 billion authorized for share repurchases.
In February, I wrote (and hoped):
With $FB now down around $215, that money could be put to very good use.
Too many companies “waste” buybacks by repurchasing shares at inflated prices, instead of biding their time and pouncing during a downturn. Meta would be wise to seize this golden opportunity to deploy cash (and boost shareholder returns) while its stock languishes near multi-year lows.
Unfortunately, Barron’s noticed that Meta seems to be scaling back its buybacks, rather than accelerating them as the stock price falls.
In fact, it appears that Meta only bought back $7.5 billion worth of shares in Q1 2022, way down from the $19 billion spent on repurchases in the fourth quarter.
To make it even worse, Barron’s estimates that only $1.5 billion of that $7.5 billion was spent after Meta’s big fall in early February. The other $6 billion came while the stock still traded above $300.
Another example of a company struggling to execute an optimal buyback strategy.
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Disclosure: This is not financial advice. I am not a financial advisor. Do your own research before making any investment decisions.