1995 Berkshire Hathaway Annual Meeting (Full Version)

Transcript

morning i'm warren buffett the chairman of berkshire hathaway and uh on my left is uh charlie munger the vice chairman of my partner and we'll try to get him to say a few words at some point in the proceedings the uh the format today is going to be just slightly different we have we have one item to uh normally we breeze through the meeting pretty ... Read More

Summary

In this video, Warren Buffett, the chairman of Berkshire Hathaway, introduces the format of the meeting and discusses an important business item concerning the authorization of preferred stock. He explains the logic behind authorizing preferred stock and addresses questions and concerns from shareholders. Furthermore, Buffett announces the acquisition of Helzberg's Diamonds and discusses the significance of having family members on the board of trustees.

Questions & Answers

Q: What is the format of the meeting?

The format of the meeting is slightly different this time, with a focus on one business item regarding the authorization of preferred stock. Questions and comments from shareholders will be addressed, and after the meeting, there will be an opportunity for additional questions.

Q: Why is the authorization of preferred stock being discussed?

Buffett explains that the authorization of preferred stock provides Berkshire Hathaway with an additional tool for making acquisitions. Depending on the circumstances and preferences of the seller, preferred stock could be a desirable form of consideration, offering sellers the chance for a tax-free exchange or providing them with a fixed income. It does not dilute the value of the common stock unless the consideration given is worth less than what is received.

Q: Are there any limitations on the amount of preferred stock that can be issued?

Buffett mentions that under Delaware law, there is an initial fee and possibly an annual fee related to the number of shares authorized. To minimize these fees, the authorization is limited to one million shares. However, if the need arose, sub-shares could be issued to facilitate trading.

Q: How does the authorization of preferred stock affect common shareholders?

Buffett emphasizes that the value of common shares is not diluted as long as the consideration given for the preferred stock equals or exceeds its value. Issuing preferred stock does not make Berkshire Hathaway more inclined to make unintelligent decisions; they can make unintelligent decisions with any form of consideration.

Q: Are there any tax advantages to issuing preferred stock?

Buffett explains that depending on the terms of the preferred stock, there could be tax advantages for both the issuer and the purchaser. However, he does not anticipate structuring the preferred stock in such a way and dismisses the idea of attempting to be too sophisticated with the tax structure.

Q: Are there any voting requirements for issuing preferred stock beyond a certain limit?

Buffett clarifies that there are no specific voting requirements under Delaware law. However, the New York Stock Exchange has a rule that triggers a shareholder vote if the conversion of a convertible preferred stock exceeds 20% of the total shares outstanding. Buffett believes it is unlikely that a transaction of that magnitude will occur at Berkshire Hathaway.

Q: Can shareholders choose to invest in the preferred stock?

While there are no plans to issue preferred stock, if it were to become actively traded and shareholders expressed interest, Berkshire Hathaway could consider offering an exchange of preferred shares for common shares. However, Buffett believes that most shareholders have a self-selected preference for owning common shares.

Q: Why were two family members added to the board of trustees?

Buffett explains that adding family members to the board helps ensure long-term ownership stability and family harmony. If Buffett were to pass away, his wife would own the stock until her death, at which point it would go to a foundation. Having family members familiar with the business and its philosophy is advisable, considering the family's ownership role in the future.

Q: Can Buffett provide an update on Chrysler Corporation?

Buffett declines to comment on Chrysler Corporation.

Takeaways

The meeting format is slightly different, with a focus on the authorization of preferred stock, and questions and concerns are addressed. The authorization of preferred stock provides Berkshire Hathaway with additional tools for making acquisitions and does not dilute the value of common stock unless the consideration provided is worth less than what is received. Family members on the board ensure long-term ownership stability. Buffett announces the acquisition of Helzberg's Diamonds.