We estimate that Berkshire’s look-through earnings per share increased by a mid-teens percentage in 2013. Organic growth was modest for most of the businesses owned directly and indirectly by Berkshire, with much of the company’s growth attributable to solid returns from an active year in capital deployment and a reversal of losses from a life reinsurance policy with Swiss Re pursuant to a negotiated settlement.
During 2013, Berkshire contributed $12.3 billion to a buyout of Heinz, spent about $5.2 billion more than depreciation on capital improvements at the utility and railroad, shelled out $3.7 billion to purchase increased stakes in Marmon and Iscar, and acquired a $3.5 billion stake in Exxon’s common shares. Approximately $1 billion was spent on a slew of smaller bolt-on acquisitions, including three made by Berkshire’s building components business Mitek. Berkshire also announced three deals in 2013 that will close in 2014. It closed on a $1.1 billion purchase of a beverage dispensing and merchandising business from IMI on January 1st, 2014. Later in the first quarter, Berkshire subsidiary MidAmerican is expected to close on the $5.6 billion acquisition of a Nevada utility, and in the second quarter it will exchange $1.5 billion in shares it holds in Phillips 66 for one of Phillips’ subsidiaries, a pipeline flow improver business that will be managed by Berkshire’s lubricants subsidiary Lubrizol.
The price paid for Heinz was not a bargain, but we expect the returns to be reasonable for Berkshire because $8 billion of Berkshire’s contributed capital was in the form of a 9%tax-advantaged preferred stock, and returns on the remaining $4.3 investment in the common and in options could reach double digits if Berkshire’s Brazilian partner 3G, which will manage the company, can reduce Heinz’s expenses as successfully as it has done at Anheuser- Busch and Burger King, both of which 3G acquired in recent years.
Source: Sequoia Fund's 2013 Annual Report - Management's Discussion of Fund Performance
