UPDATE: Buffett Sees More Investments In Japan

[Craig]

Interesting international / falling greenback perspective from one of our favorite investors.

http://news.morningstar.com/news/DJ/...?pgid=wwhome1a

Quote:

UPDATE: Buffett Sees More Investments In Japan* * * 05-08-06 10:13 AM EST Omaha, Neb. (Dow Jones) -- Berkshire Hathaway Inc. Chairman Warren Buffett said Sunday that he will likely be making more investments in U.K. and European companies during the next year, and would consider acquisitions in Japan. Buffett also said there are few bargains among big U.S. companies. He described the U.K. market as a "fertile field," but said rules requiring investors to make their holdings public if they own more than 3% of a company is a drawback for Berkshire, which usually takes big stakes when investing. "One of the things we don't like about the U.K. is that we have to report 3% publicly," he said. "That's a mild negative from our standpoint and makes accumulation more expensive." Still, Buffett suggested Berkshire will invest more in the U.K. and Europe. " I'd be surprised if you didn't see reports on U.K. or other European companies in the next year or so," Buffett said. As Buffett looks to put some of Berkshire's $40 billion cash pile to work in more, big acquisitions, he's increasing looking outside his usual U.S. hunting ground. On Friday, Berkshire announced the acquisition of an 80% stake in Israeli toolmaker Iscar Metalworking Cos. for $4 billion. It's the first company Berkshire has purchased that's based outside the U.S.* On Sunday, Buffett said he hoped the Iscar purchase would encourage other overseas companies to contact Berkshire about acquisitions. "We'd love to hear from good sized businesses anywhere in the world," he said. "If we can find businesses of size that meet the same kind of tests that we apply in the U.S., we're more than happy to take a look." Japan was another country that Buffett singled out for possible acquisitions, partly because a recent increase in shareholder activism there might encourage owners to sell to Berkshire, he said. "I have hopes of doing something in Japan," he said. "We negotiated on one large deal a while back that didn't come to fruition." Still, Berkshire Vice Chairman Charlie Munger was more subdued about Berkshire branching out more abroad. "The fact that we've bought Iscar does not mean we will go running through Europe buying everything in sight," he said. "It does indicate we're willing to do something we haven't done before at a moment's notice." Buffett hinted Saturday that Berkshire Hathaway Inc. will be making more acquisitions outside the U.S. in the wake of the Iscar purchase. "You will probably look back on this in five or 10 years as a very significant event in Berkshire's history," Buffett said. Buffett also said the company has a possible $15 billion acquisition idea, a deal which would put a big chunk of its huge cash pile to work. Buffett said, though, that it was a "low-probability" idea. He didn't say whether it involved a U.S. or non-U.S. company. Buffett said he plans to visit Israel later this year, to visit Iscar headquarters, and also to "see if there are any other pearls like you out there." Iscar itself may be able to make interesting acquisitions in coming years, he said. While Berkshire hasn't acquired any overseas companies, Buffett has invested in shares of companies based outside the U.S., such as PetroChina. Part of this strategy is tied to Buffett's increasing concern about the U.S.'s growing trade imbalances and their potential to weaken the U.S. dollar. In 2002, he increased Berkshire's bets against the dollar and more recently he invested more money in overseas assets to hedge against a decline in the greenback. As the dollar climbed in 2005, Buffett's positions cost Berkshire almost $1 billion. But so far this year, the dollar has fallen again, giving back about half its gains from last year. The investments were "intended to hedge our assets from a falling U.S. dollar, but lots of people have missed this, thinking instead that this is market speculation," Thomas Russo, a partner at Lancaster, Pa., investment firm Gardner Russo & Gardner, said earlier this week. Russo is a Berkshire shareholder. Since Buffett first built his dollar hedges, Berkshire has made about $2 billion off the positions, he said in his 2005 letter to shareholders. Berkshire Hathaway Inc. said Friday that it agreed to acquire 80% of Iscar in a deal that values the Israeli business at $5 billion. Berkshire is paying $4 billion for its controlling 80% stake. The purchase illustrates Buffett's (BRKA) (BRKB) penchant for buying family-owned firms as he sought to put more of the company's $40 billion in cash to work. Friday's deal for Iscar will leave 20% of the company in the hands of the Wertheimer family, Iscar's current shareholders and founders. A rising stock market, continued availability of relatively cheap credit, and competition from rival acquirers such as private-equity funds have made it harder for Berkshire to find big acquisition that fit Buffett's strict value- investing criteria. That's part of the reason Berkshire shares have stagnated over the past two years. In his 2004 shareholder letter, Buffett said he'd "struck out" by not making any multibillion-dollar acquisitions that year. But Buffett has been more successful in tracking down opportunities recently, buying sports-clothing maker Russell and corporate-announcement firm BusinessWire earlier this year. The Iscar deal may be the largest Berkshire acquisition since last year's purchase of giant utility PacifiCorp. "That will eat up a chunk of cash," Jeff Auxier, manager of the Auxier Focus Fund and a Berkshire shareholder, said. "That's three pretty large acquisitions in the past few months." When buying family-run businesses like Iscar, Buffett has an advantage over private-equity funds because he has a reputation for not meddling with the firms he owns, Auxier added. "For families that own and love their businesses and don't want to sell to private-equity firms, it makes sense to sell to Buffett," Auxier said. "There aren't a lot of buyers out there that won't want to rearrange or dismantle parts of the businesses they buy." Buffett said in a statement on Friday that the metal-cutting-tools specialist's business in markets like Europe, Asia and Latin America made it an attractive target. "With this acquisition, we have the benefit of investing in a stable business with very significant growth prospects," said Buffett in a statement. Executives from the company will remain in place and the headquarters of Iscar will continue to be in Tefen, Israel. Iscar operates plants in Israel, the U.S., Korea, Brazil, China, Germany, India, Italy and Japan and has customers in 61 countries. "Owning businesses with operations outside the U.S. is pretty consistent with his recent strategy," Auxier said. "This gives Berkshire greater diversification and he can leave the operations to the family owners." As for the potential giant $15 billion deal, "Whether that comes to fruition isn't clear, but we're working on it," Buffett said. Buffett also said Berkshire will get more opportunities to acquire utility businesses. "Three years from now, we will probably have a lot less cash," he said.

[Nords]

This is another chapter in the epic titled "Evolution of an Investor". I bet Alice Schroeder just had to throw away her draft manuscript and start all over again.

It seems as if he tried to buy the American stock market, then he tried to buy American companies, then he looked at overseas markets, and now he's fishing among the rest of the world's privately-held businesses. That $40B is probably depreciating faster than it's earning, and there are a lot more boring consumer-products companies out there whose executives are looking for ways to solve their capital-management or inheritance problems.

I wonder if publicly discussing a $15B deal means that it's already dead and whether Buffett is just trying to send a signal to other wannabe business sellers.

[bpp]

Things have gotten a lot more expensive here lately. Screens that I set up 2-3 years ago to pick out the lower half of the Japanese market in terms of p/b and p/e now return only a handful of stocks.

Of course, Buffet would never use such a simple-minded approach, and I imagine he can probably find something he likes.

Bpp