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Buffett Set to Save More Than $1 Billion on Taxes in Swap
By Noah Buhayar, Richard Rubin and Zachary Tracer Nov 13, 2014 11:50 AM CT
Nov. 13 (Bloomberg) -- Gabelli Funds Portfolio Manager Howard Ward discusses
Berkshire Hathaway’s agreement to buy Duracell from Procter & Gamble. Ward
speaks on “Bloomberg Surveillance.” (Source: Bloomberg)
Related
What Buffett Sees in $4.7B Duracell Deal
Warren Buffett is again showing how to use the U.S. tax code to his
advantage.
For the third time in a year, the billionaire chairman of Berkshire Hathaway
Inc. (BRK/A) has structured a deal in which he buys businesses in exchange
for stock that has appreciated. The transactions, called cash-rich split-
offs, allow him to avoid capital gains taxes that would be incurred if he
sold the shares in the open market.
Berkshire announced today that it would turn over about $4.7 billion in
Procter & Gamble Co. (PG) stock in exchange for P&G’s Duracell battery
business, which will be infused with about $1.7 billion in cash.
Since Buffett’s cost basis on the shares was about $336 million, and
corporate capital gains are typically taxed at 35 percent, structuring the
deal in this way could save Berkshire more than $1 billion. P&G also stands
to reduce its tax liability on the sale.
“Cutting out the 35 percent capital gains allows them to do this at a price
that’s more attractive for Berkshire,” said Richard Cook, co-founder of
Cook & Bynum Capital Management LLC, which holds shares in Buffett’s
company. “If they did it in an open auction, P&G would probably wind up in
a similar position, and Berkshire wouldn’t have participated.”
Photographer: Jeff Kowalsky/Bloomberg
Warren Buffett, chief executive officer of Berkshire Hathaway Inc.
The Duracell deal mirrors two of Buffett’s transactions this year. In
February, Berkshire handed over a holding in Phillips 66 in exchange for its
pipeline-flow-improver business. He later swapped a stake in Graham
Holdings Co. (GHC) for cash, a Miami television station and Berkshire stock
that Graham held. Graham is the former publisher of the Washington Post.
Berkshire highlighted the attractive nature of the deals in its latest
quarterly report to the U.S. Securities and Exchange Commission.
‘Tax-Free Reorganization’
“Each exchange transaction was structured as a tax-free reorganization
under the Internal Revenue Code,” the company said in the Nov. 7 filing. “
As a result, no income taxes were provided on the excess of the fair value
of the businesses received over the tax-basis cost of the common stock of
Phillips 66 and Graham Holdings Company exchanged.”
A similar result should be “eminently achievable” on the Duracell deal,
Robert Willens, an independent tax consultant, said in a report today.
Willens and Cook said that tax savings would be more than $1 billion based
on the cost basis listed by Berkshire. Buffett didn’t return a call left
with an assistant seeking comment.
Photographer: Daniel Acker/Bloomberg
Berkshire announced today that it would turn over about $4.7 billion in
Procter &... Read More
“These transactions, amazingly enough, are not really considered aggressive
, because there’s such a well-prescribed formula that you need to follow,”
Willens said in an interview.
Burger King
P&G will also benefit because it’s getting to retire a portion of its stock
using property that has appreciated in value without paying taxes on that
increase, he said.
Buffett, 84, has publicly supported a higher tax rate on wealthy individuals
and even lent his name to President Barack Obama’s effort to do just that.
The stance has often been compared with some of the actions his company has
taken.
In August, Burger King Worldwide Inc. (BKW)’s proposed takeover of Oakville
, Ontario-based doughnut chain Tim Hortons Inc., which Buffett agreed to
help finance, drew criticism. The combined company plans to locate in Canada
, making it eligible for a lower corporate tax rate.
Obama and Congress have been weighing how to dissuade companies from moving
to other nations to reduce their tax bill after several sought to do such
deals this year. Buffett has said that while the Burger King deal fits the
definition of a so-called inversion, it should be distinguished from
transactions in which companies shift valuable intellectual property to
other nations.
Buffett’s Duty
“There isn’t a whole lot of intellectual property to transfer with
hamburgers,” Buffett said on MSNBC in September. “This is not a case of
trapped cash, it’s not a case of intellectual property. It’s a case of the
larger company being in Canada.”
Cliff Gallant, an analyst at Nomura Holdings Inc., said Buffett’s personal
views should be distinguished from how he runs his business. As a chief
executive officer, he’s obligated to make decisions that maximize value for
shareholders.
“Every time he tries to save a tax dollar he gets criticized,” said
Gallant. “He has a duty to minimize taxes for Berkshire.”
To contact the reporters on this story: Noah Buhayar in Seattle at [email protected]
bloomberg.net; Richard Rubin in Washington at [email protected]
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;
Zachary Tracer in New York at [email protected]
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By Noah Buhayar, Richard Rubin and Zachary Tracer Nov 13, 2014 11:50 AM CT
Nov. 13 (Bloomberg) -- Gabelli Funds Portfolio Manager Howard Ward discusses
Berkshire Hathaway’s agreement to buy Duracell from Procter & Gamble. Ward
speaks on “Bloomberg Surveillance.” (Source: Bloomberg)
Related
What Buffett Sees in $4.7B Duracell Deal
Warren Buffett is again showing how to use the U.S. tax code to his
advantage.
For the third time in a year, the billionaire chairman of Berkshire Hathaway
Inc. (BRK/A) has structured a deal in which he buys businesses in exchange
for stock that has appreciated. The transactions, called cash-rich split-
offs, allow him to avoid capital gains taxes that would be incurred if he
sold the shares in the open market.
Berkshire announced today that it would turn over about $4.7 billion in
Procter & Gamble Co. (PG) stock in exchange for P&G’s Duracell battery
business, which will be infused with about $1.7 billion in cash.
Since Buffett’s cost basis on the shares was about $336 million, and
corporate capital gains are typically taxed at 35 percent, structuring the
deal in this way could save Berkshire more than $1 billion. P&G also stands
to reduce its tax liability on the sale.
“Cutting out the 35 percent capital gains allows them to do this at a price
that’s more attractive for Berkshire,” said Richard Cook, co-founder of
Cook & Bynum Capital Management LLC, which holds shares in Buffett’s
company. “If they did it in an open auction, P&G would probably wind up in
a similar position, and Berkshire wouldn’t have participated.”
Photographer: Jeff Kowalsky/Bloomberg
Warren Buffett, chief executive officer of Berkshire Hathaway Inc.
The Duracell deal mirrors two of Buffett’s transactions this year. In
February, Berkshire handed over a holding in Phillips 66 in exchange for its
pipeline-flow-improver business. He later swapped a stake in Graham
Holdings Co. (GHC) for cash, a Miami television station and Berkshire stock
that Graham held. Graham is the former publisher of the Washington Post.
Berkshire highlighted the attractive nature of the deals in its latest
quarterly report to the U.S. Securities and Exchange Commission.
‘Tax-Free Reorganization’
“Each exchange transaction was structured as a tax-free reorganization
under the Internal Revenue Code,” the company said in the Nov. 7 filing. “
As a result, no income taxes were provided on the excess of the fair value
of the businesses received over the tax-basis cost of the common stock of
Phillips 66 and Graham Holdings Company exchanged.”
A similar result should be “eminently achievable” on the Duracell deal,
Robert Willens, an independent tax consultant, said in a report today.
Willens and Cook said that tax savings would be more than $1 billion based
on the cost basis listed by Berkshire. Buffett didn’t return a call left
with an assistant seeking comment.
Photographer: Daniel Acker/Bloomberg
Berkshire announced today that it would turn over about $4.7 billion in
Procter &... Read More
“These transactions, amazingly enough, are not really considered aggressive
, because there’s such a well-prescribed formula that you need to follow,”
Willens said in an interview.
Burger King
P&G will also benefit because it’s getting to retire a portion of its stock
using property that has appreciated in value without paying taxes on that
increase, he said.
Buffett, 84, has publicly supported a higher tax rate on wealthy individuals
and even lent his name to President Barack Obama’s effort to do just that.
The stance has often been compared with some of the actions his company has
taken.
In August, Burger King Worldwide Inc. (BKW)’s proposed takeover of Oakville
, Ontario-based doughnut chain Tim Hortons Inc., which Buffett agreed to
help finance, drew criticism. The combined company plans to locate in Canada
, making it eligible for a lower corporate tax rate.
Obama and Congress have been weighing how to dissuade companies from moving
to other nations to reduce their tax bill after several sought to do such
deals this year. Buffett has said that while the Burger King deal fits the
definition of a so-called inversion, it should be distinguished from
transactions in which companies shift valuable intellectual property to
other nations.
Buffett’s Duty
“There isn’t a whole lot of intellectual property to transfer with
hamburgers,” Buffett said on MSNBC in September. “This is not a case of
trapped cash, it’s not a case of intellectual property. It’s a case of the
larger company being in Canada.”
Cliff Gallant, an analyst at Nomura Holdings Inc., said Buffett’s personal
views should be distinguished from how he runs his business. As a chief
executive officer, he’s obligated to make decisions that maximize value for
shareholders.
“Every time he tries to save a tax dollar he gets criticized,” said
Gallant. “He has a duty to minimize taxes for Berkshire.”
To contact the reporters on this story: Noah Buhayar in Seattle at [email protected]
bloomberg.net; Richard Rubin in Washington at [email protected]
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/* ]]> */
;
Zachary Tracer in New York at [email protected]
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