Warren Buffett is not the only chief executive officer under the Berkshire Hathaway Inc. (NYSE:BRK.A) banner spending big bucks in business deals. While Buffet’s $12.1 billion deal to take H.J. Heinz Co. (NYSE:HNZ) private with 3G Capital Management made headlines earlier this year, his spending is matched by managers in the company, according to Bloomberg. The autonomy given to CEOs operating businesses owned by Berkshire Hathaway bodes will for the long-anticipated change of leadership when Buffet eventually decides to abdicate his throne.
James Hambrick — Chief Executive Officer of Berkshire owned chemical maker Lubrizol — said, “If I don’t take my own cash flow and reinvest, all I do is add to his [Buffet’s] problems.” Lubrizol plans to spend around $1.4 billion over the next three years to maintain its equipment and expand its operations. Despite the big spending, the company still manages to send profits back to Berkshire Hathaway.
Capital spending keeps going up at Berkshire. In 2012, the company spent $9.78 billion, an increase of 19% from the year earlier. The company’s subsidiaries spent a total of around $2.3 billion in 2012 for acquisitions. In a letter to shareholders this year, Buffet wrote that the company will keep its “foot to the floor and will almost certainly set still another record for capital expenditures in 2013. Opportunities abound in America.”
James Armstrong — a Pittsburg-based investment manager that oversees around $400 million, including Berkshire Hathaway shares — said “You’re not going to see a lot of wasted money,” in a phone interview with Bloomberg. He emphasized that shareholders should “delight” in spending by Buffett and managers at Berkshire because of their track record of success. Overall, Berkshire has moved to more capital intensive industries in recent years, including insurance companies and railroads.
Despite the billions of dollars in spending by Berkshire subsidiary companies, Buffett keeps a relatively hands-off approach. Managers decide how much input from Buffett they want on most subjects and only have to contact him regarding “unusually large capital expenditures or acquisitions,” Buffett said. Giving autonomy to the people running Berkshire’s many subsidiary companies is a big step towards ensuring the company’s future when Buffetteventually steps down.
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