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Berkshire Hathaway was long teased as the conglomerate that couldn\u2019t find anything worthwhile to buy. Now, as the cash pile has swelled to $400 billion\u2014it\u2019s highest ever\u2014and with a new CEO in charge, the firm is finally pulling the trigger.<\/p>\n
Berkshire is buying the Taylor Morrison Home Corp., the country\u2019s sixth-largest homebuilder, for $8.5 billion, or $72.50 a share in cash.<\/p>\n
It\u2019s Berkshire\u2019s first major acquisition since Greg Abel became chief executive on Jan. 1, and Warren Buffett, now 95 and a chairman, made a point of standing back from it.\u00a0\u00a0<\/p>\n
\u201cGreg did that faster than I could have done it, smoother than I could have done it, and I never talked to the CEO,\u201d he told CNBC\u2019s Becky Quick.\u00a0<\/p>\n
While Abel has been at the helm for several months now and presided over the company\u2019s annual shareholders meeting for the first time as CEO last month, Buffett indicated his successor has finally made the job his own.<\/p>\n
\u201cHe has launched,\u201d he said of Abel.\u00a0<\/p>\n
Yet despite Buffett handing the credit to his new CEO, the deal is still classic Buffett, who led the company for 60 years and has made an indelible mark on its DNA.\u00a0<\/p>\n
For example, Berkshire is paying about 0.9 times Taylor Morrison\u2019s tangible book value, Citizens analyst James McCandless said, meaning the price tag is less than the hard assets are actually worth.\u00a0<\/p>\n
As his longtime friend and Fortune reporter Carol Loomis laid out in this magazine in 1988, Buffett\u2019s acquisition strategy was never very complicated: buy a whole business for no more than its intrinsic value and then just hold it.\u00a0<\/p>\n
Buying a company for less than its assets are worth was how Buffett thought about the job, whether he was acting as an investor or a businessman, Loomis wrote, adding that \u201che simply will not overpay.\u201d<\/p>\n
There are other parts of the Buffett playbook in the deal, too. It\u2019s all cash. Taylor Morrison Chairman and CEO Sheryl Palmer stays on, consistent with another Buffett rule Loomis quoted: \u201cWe can\u2019t supply management, and won\u2019t.\u201d<\/p>\n
But in other ways, the deal looks riskier than some of Buffett\u2019s classic bets. Homebuilding takes heavy, repeated capital investments, and it rises and falls hard with the economy. Buffett\u2019s definition of a \u201cgood business\u201d was much lighter: a strong brand carrying above-average returns and a small need for new capital, so the company stays nimble and throws off cash. Homebuilding is none of that. And Buffet\u2019s got the scars to prove it. The textile mill that gave Berkshire its name was the original bad business, one Buffett nursed for 20 years before finally shutting it down.<\/p>\n
But analysts say the scale of the latest deal changes the stakes. Folded in with Clayton Homes\u2014Berkshire\u2019s manufactured-home builder, which it has owned since 2003\u2014Taylor Morrison would make Berkshire roughly the fourth-largest homebuilder in the country by closings, behind only D.R. Horton, Lennar and PulteGroup, former Fortune reporter and housing analyst Lance Lambert calculated.<\/p>\n
So the economies of scale might make the deal worth it. Bigger builders can buy land cheaper, handle volatility in materials costs (especially prudent during supply-chain disruptions like tariffs or an oil shock), and offer mortgage-rate buydowns that rivals can\u2019t match.\u00a0<\/p>\n
And the housing industry has slowly consolidated as the market slumps. After years of mortgage rates stuck above 6%, prices for homes just won\u2019t come down and buyers won\u2019t bite, with affordability near its worst in decades. So builders have leaned on incentives for more than a year just to keep homes selling.<\/p>\n
#Buffett #Abel #launched #Berkshire #CEO #billion #housing #bet<\/p>\n","protected":false},"excerpt":{"rendered":"
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