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NEW YORK / TOKYO: Berkshire Hathaway Inc has purchased a 5% stake in each of Japan’s five largest business houses, with a total value of more than $ 6 billion, marking an exit for President Warren Buffett while looking beyond the United States to diversify its conglomerate.
Long-term investment in Itochu Corp, Marubeni Corp, Mitsubishi Corp, Mitsui & Co Ltd and Sumitomo Corp could see the stakes rise to 9.9%, Berkshire said on Sunday, Buffett’s 90th birthday.
“The top five commercial companies have many joint ventures around the world and are likely to have more,” Buffett said in a statement. “I hope that in the future there are opportunities for mutual benefit.”
The investment will help reduce Berkshire’s dependence on the US economy, which in the last quarter contracted the most in at least 73 years as the COVID-19 pandemic took hold. Many of its businesses have struggled, including aircraft parts maker Precision Castparts, which had a writedown of $ 9.8 billion.
Buffett’s choice in Japan, however, took market players by surprise, as trading houses have been far from investor favorites. In addition to significant exposure to the energy sector and resource price volatility, tangled business models involving commodities as varied as noodles and rockets have long been a detour.
“Its cheap valuation may have been a draw,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo. “But it’s not like Buffett buying into all five companies rather than selecting a few.”
DOWN BOOK
Berkshire bought the just over 5% stakes in about a year through insurance company National Indemnity Co. Together, five 5% stakes were worth 700 billion yen ($ 6.63 billion), according to Reuters calculations. based on Refinitiv data.
Company shares often rise when Buffett discloses the investment, reflecting what investors see as his imprimatur. On Monday, Marubeni and Sumitomo finished with more than 9%, followed by Mitsubishi and Mitsui with more than 7%. Itochu rose 4.2% to a record high.
Even so, Marubeni, Mitsubishi and Sumitomo are still 10% below the year, compared to a 6% drop in the Topix index. Itochu, which has been geared towards consumer-related businesses, is the only one whose share price is higher than last year.
In fact, Itochu is the only one whose shares are trading above their book value. That means, for the other four, their market capitalization is less than the value of their assets, which makes them attractive to a value investor like Buffett.
Several have large amounts of cash on hand, adding to their appeal. Mitsubishi, for example, has seen steady growth in free cash flow per share for four years, Refinitiv data showed.
Trading houses are also deeply involved in the real economy in areas like steel, shipping, commodities, putting them on the radar of an investor like Buffett, who is famous for avoiding investing in businesses that he says no. understand.
When asked about the investment, Mitsui told Reuters his goal is to improve returns for all shareholders. Marubeni and Mitsubishi said they will continue their efforts to enhance corporate value. Sumitomo said it will communicate with Berkshire like all other shareholders. Itochu was not available for comment.
UNITED STATES DEPENDENCE
Berkshire owns more than 90 businesses, including rail insurer BNSF and auto insurer Geico.
It also invests in dozens of companies, including American Express Co, Bank of America Corp and Coca-Cola Co. It has an approximately $ 125 billion stake in Apple Inc based on its stakes as of June 30.
“Buffett’s portfolio is leaning a lot towards Apple, so maybe he was looking for something completely opposite to Apple,” said Monex chief strategist Hiroki Takashi in Tokyo.
Most of Berkshire’s operating businesses are American, although it has acquired a handful of foreign companies, including Israel’s IMC International Metalworking and German motorcycle clothing retailer Detlev Louis.
Additional investments in Japan could also help reduce Berkshire’s cash stock, which ended June at a record $ 146.6 billion. ($ 1 = 105.6500 yen) – Reuters
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