Berkshire Hathaway Inc. (BRK.B), a giant conglomerate and one of the world's largest companies, was founded by its current Chairman and CEO, billionaire Warren Buffett. Originally created by the 1955 merger of two New England textile manufacturers, Berkshire Hathaway was acquired by Buffett in 1965. It is now a holding company for the many acquisitions and investments Buffett has made over the decades. With a market capitalization of over $400 billion, it's one of the largest publicly traded companies in the world, and the fifth largest company in the S&P 500. Berkshire Hathaway's diverse group of businesses generated a total of $254.6 billion in revenue in 2019 and $81.4 billion in net earnings.
Buffett, regarded as one of the world's most successful investors, sold the textile business in 1985. He went on to acquire a broad range of companies in industries such as insurance, railroads, manufacturing, gas and electric utilities, and logistics. Buffett has said he likes to invest in companies with an "economic moat," meaning corporations that possess a sustainable competitive advantage enabling them to protect their business from rivals. For example, railroads and utilities have a moat due to the huge startup capital needed to lay railroad track or set up power lines. Some manufacturers, such as Precision Castparts (see below) have a large number of sophisticated and specific products that can be difficult to replicate, another form of a moat. Insurance is special because it involves one of Buffett's major innovations, the use of insurance float as investment capital.
Below, we look in detail at 5 of the company's biggest acquisitions. In addition, we list the top 5 holdings in Berkshire's $248 billion stock portfolio, which Buffett considers to be partial acquisitions.
- Type of Business: Insurance
- Acquisition Cost: $2.3 billion
- Acquisition Date: January 2, 1996
- Revenue (FY 2019): $35.6 billion
- Earnings Before Taxes (FY 2019): $1.5 billion
GEICO, the acronym for "Government Employees Insurance Company," originally served federal employees and the military. GEICO had a competitive advantage by being the first major insurer to market directly to customers. Warren Buffett purchased about half of GEICO's stock over the course of a few decades leading up to 1996, when he purchased the remaining half of the company. GEICO was just one of Buffett's insurance deals, having first purchased National Indemnity in 1967. Because insurance premiums are collected up front, and only paid out when and if something happens, insurance companies hold on to a huge amount of money to cover future payouts. Buffett has used this "insurance float" to make major investments, which is one of the keys to his success. The total float for all Berkshire's insurance businesses was $130 billion dollars as of the end of 2019.
Burlington Northern Santa Fe Corporation (BNSF)
- Type of Business: Freight Railroad
- Acquisition Price: $34.5 billion
- Acquisition Date: February 12, 2010
- Yearly Revenue (FY 2019): $23.5 billion
- Earnings Before Taxes (FY 2019): $7.3 billion
BNSF was created in September 1995, when Burlington North Inc. and Santa Fe Pacific Corp. merged. Both companies were the result of previous railway mergers, and BNSF now has 32,500 miles of track, mostly across the Central and Western U.S. It hauls agricultural products, consumer goods, industrial products, and coal.
- Type of Business: Supply Chain Services
- Acquisition Price: $1.5 billion
- Acquisition Date: May 23, 2002
- Revenue (FY 2019): $49.8 billion
- Earnings Before Taxes (FY 2019): $2.6 billion
McLane was founded in 1894 as a small grocery store. Over time, it grew into a major business that specializes in supplying products to grocery stores, drug stores, chain restaurants, and convenience stores. In 1990 it was purchased by Walmart, one of its largest customers. Berkshire purchased it from Walmart and currently operates more than 80 distribution centers across the U.S.
Precision Castparts Company (PCC)
- Type of business: Industrial Components Manufacturing
- Acquisition Price: $37.2 billion including debt
- Acquisition Date: January 29, 2016
- Revenue (FY 2019): $10.3 billion
- Earnings Before Taxes (FY 2019): N/A
Founded in 1953, PPC makes metal parts for a variety of industries. At the time of its acquisition, roughly 70% of its sales came from the aerospace industry, with 17% coming from making turbines for power generation companies. The remainder came from other industrial clients. It remains the largest acquisition that Berkshire has ever made.
- Type of Business: Specialty Chemical Company
- Acquisition Cost: $9.7 billion
- Acquisition Date: September 16, 2011
- Revenue (FY 2019): $6.5 billion
- Earnings before taxes: N/A
Lubrizol was founded in 1928 as the Graphite Oil Products company. The success of its "Lubri-Zol" motor oil led it to change its name in 1934 to Lubri-zol, eventually dropping the hyphen. Lubrizol went public in the 1960's and expanded into a variety of chemical businesses around the world before being bought by Berkshire in 2011.
As mentioned, Berkshire also owns major equity stakes in large U.S. companies worth hundreds of billions of dollars in total. Here's a look at the top five.
|Berkshire Hathaway Top 5 Equity Holdings|
|Stock (Ticker)||Size of Holding ($B)||Percent of Company Owned|
|Apple Inc. ( AAPL)||73.7||5.7|
|Bank of America Corp. ( BAC)||33.4||10.7|
|Coca-Cola Co. ( KO)||22.1||9.3|
|American Express Co. ( AXP)||18.9||18.7|
|Wells Fargo & Co. ( WFC)||18.6||8.4|
Apple: Apple is a major producer of consumer electronics such as the iPhone and Mac computer. It also has major revenue streams from digital services such as its app store.
Bank of America: Bank of America is a major commercial and investment bank.
Coca-Cola: Coca-Cola is the world's largest maker of non-alcoholic beverages, including its most famous brand, Coca-Cola.
American Express: American Express is a financial services company best known for its credit card of the same name.
Wells Fargo: Wells Fargo is a major commercial and investment bank.
Berkshire Hathaway Diversity & Inclusiveness Transparency
As part of our effort to improve the awareness of the importance of diversity in companies, we offer investors a glimpse into the level of transparency of Berkshire Hathaway and how that reflects its commitment to diversity, inclusiveness, and social responsibility. We examined the data Berkshire Hathaway releases. It shows Berkshire Hathaway does not disclose any data about the diversity of its board of directors, C-Suite, general management, and employees overall. It also shows Berkshire Hathaway does not reveal the diversity of itself by race, gender, ability, veteran status, or LGBTQ+ identity.
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