Warren Buffett’s Berkshire Hathaway faces a court battle with Volkswagen after rejecting its Dieselgate settlement deal

warren buffett
Warren Buffett.

  • Warren Buffett’s Berkshire Hathaway is facing a legal clash with Volkswagen.
  • The German carmaker settled with other insurers over Dieselgate, but Berkshire rejected the deal.
  • Volkswagen is now preparing to take legal action against Berkshire to force it to pay up.
  • See more stories on Insider’s business page.

Warren Buffett’s Berkshire Hathaway is facing a legal battle with Volkswagen after rejecting a settlement deal with the German auto giant related to its emissions scandal.

Volkswagen took out a “first excess liability insurance policy” with Berkshire’s international-insurance unit in January, the automaker revealed in an investor document last week. That policy puts Buffett’s company on the hook for up to 50 million euros ($59 million) if a claim exceeds Volkswagen’s 25 million euros’ worth of coverage from its primary insurer, Zurich.

The German automaker had been locked in talks with insurers for years over how much they owed it under various insurance policies following its emissions fiasco. It has now reached a settlement with insurers including AIG and Allianz that will see them pay a total of 270 million euros to Volkswagen, minus payments they’ve already made or scheduled. However, Berkshire refused to sign the agreement.

Volkswagen intends to enforce Berkshire’s insurance obligation “including in court if necessary,” and its supervisory board has “instructed that preparations be made for legal action against Berkshire Hathaway,” the investor document shows.

The automaker added that it won’t be bound by the settlement amount and other terms it offered Buffett’s company while negotiating the settlement. That suggests it could seek more money from Berkshire than it initially requested.

Berkshire and Volkswagen didn’t immediately respond to requests for comment from Insider.

Volkswagen has faced billions of dollars’ worth of legal claims and fines since it admitted to installing “defeat devices” in millions of its diesel-powered cars between 2009 and 2015. The secret software enabled the cars to cheat vehicle-emission tests and skirt environmental regulations – a scandal dubbed “Dieselgate.”

In addition to its insurers, Volkswagen has reached Dieselgate-related settlements with its former chairman, Martin Winterkorn, and an Audi board member, Rupert Stadler. Winterkorn and Stadler will pay 11.2 million euros and 4.1 million euros respectively, partly by waiving their claims to bonuses.

Volkswagen might be clashing with Buffett, but it counts another famous value investor among its fans: Michael Burry of “The Big Short.” The Scion Asset Management boss disclosed in March that he holds a stake in Porsche SE, the German holding company that owns about 31% of Volkswagen.

“Investors, partly due to the #ESGFog, underestimate the size, scale, brands, staying power, and resources of Volkswagen,” Burry tweeted at the time.

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Warren Buffett won’t be following Jeff Bezos and Richard Branson into space – he ruled out a rocket trip 25 years ago

Warren Buffett
Warren Buffett.

  • Warren Buffett won’t be following Jeff Bezos or Richard Branson into space.
  • The investor once said he admired space explorers but had no desire to board a rocket himself.
  • Buffett joked he would charge less to insure Elon Musk’s Mars mission if Musk was on board.
  • See more stories on Insider’s business page.

Amazon’s Jeff Bezos and Virgin’s Richard Branson blasted themselves into space this month, while SpaceX CEO Elon Musk’s grand vision is colonizing Mars. Warren Buffett doesn’t share his fellow billionaires’ passion for interstellar travel – he ruled out leaving Earth 25 years ago.

Buffett – who made his fortune investing in staid companies like Coca-Cola and Gillette – takes the same approach to fast-changing businesses and industries as he does to extraterrestrial voyages, he said in his 1996 letter to Berkshire Hathaway shareholders.

“As investors, our reaction to a fermenting industry is much like our attitude toward space exploration: We applaud the endeavor but prefer to skip the ride,” Buffett said.

The 90-year-old investor clearly has zero interest in planning a trip to space. However, he found it a useful analogy to underscore the problem of a ballooning global population on a planet with limited resources during Berkshire’s shareholder meeting in 2002.

“If you were going to go on a spaceship for a hundred years and you knew in the back of the spaceship there were a lot of provisions, but you didn’t know exactly how much – in terms of filling the front of the spaceship with a given number of people, you would probably err on the low side,” Buffett said.

The Berkshire chief argued that if the exact amount of provisions and the precise timing of the spaceship’s return were unclear, it would make sense to be conservative with passenger numbers and reduce the risk of mass starvation.

“We are in a vehicle called Earth,” Buffett continued. “We don’t know its carrying capacity. We have learned that it’s a lot larger than might have been thought by Malthus or somebody a few hundred years ago, but that doesn’t mean it’s infinite at all.”

Buffett returned to the subject of space at Berkshire’s annual meeting this year. When an audience member asked if Berkshire would insure Musk’s mission to Mars, the investor quipped that he would charge a lower premium if the Tesla CEO was on the spaceship.

“I would probably have a somewhat different rate if Elon was on board or not on board,” he said. “It makes a difference. If somebody is asking you to insure something, that’s called getting skin in the game.”

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Warren Buffett’s Berkshire Hathaway sold Kirby after 35 years. The vacuum-cleaner company generated 5% of Berkshire’s profits at one point

Warren Buffett
Warren Buffett.

  • Warren Buffett’s Berkshire Hathaway sold Kirby after 35 years of ownership.
  • The investor bought Scott Fetzer, the vacuum-cleaner brand’s parent company, in 1986.
  • Kirby once generated 5% of Berkshire’s profits, and Buffett ranked it among his best businesses.
  • See more stories on Insider’s business page.

Warren Buffett’s Berkshire Hathaway recently sold Kirby after 35 years of owning the vacuum-cleaner company. The famed investor’s conglomerate rarely sells businesses, and Buffett once prized Kirby as one of Berkshire’s best subsidiaries, making the transaction a notable one.

Berkshire sold Kirby to Right Lane Industries, an industrial holding company that seeks to acquire US-based manufacturing and industrial-services companies, invest in them, and hold them permanently. That strategy chimes with Berkshire’s promise of a “forever home” for the businesses it buys.

Before its sale to Right Lane, Kirby was a division of Scott Fetzer, a manufacturing conglomerate that Berkshire purchased in 1986. Buffett trumpeted the direct seller of vacuum cleaners as one of Scott Fetzer’s crown jewels in his 1985 letter to Berkshire shareholders.

“While the Kirby product is more expensive than most cleaners, it performs in a manner that leaves cheaper units far behind (‘in the dust,’ so to speak),” Buffett said. “Many 30- and 40-year-old Kirby cleaners are still in active duty. If you want the best, you buy a Kirby.”

Moreover, Buffett once counted Kirby as one of “The Sainted Seven” among Berkshire’s non-insurance businesses, along with the likes of See’s Candies and Nebraska Furniture Mart.

“This divine assemblage … is a collection of businesses with economic characteristics that range from good to superb,” the investor said in his 1989 letter. “Its managers range from superb to superb.”

Buffett was right about Kirby’s stellar prospects. The company’s annual pre-tax earnings almost tripled to $59 million between 1986 and 1996, and Berkshire’s net earnings from Kirby nearly quadrupled to $40 million over the same period.

Moreover, Kirby generated more profit than all but one of Berkshire’s 10 non-insurance businesses in 1996, and was responsible for about 5% of the conglomerate’s operating earnings that year.

It’s unclear why Scott Fetzer decided to dispose of Kirby, a company it owned for more than 50 years and partnered with for more than a century. Berkshire Hathaway, Scott Fetzer, Right Lane, and Kirby didn’t immediately respond to requests for comment from Insider.

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Warren Buffett likely took a $6 billion hit on just 4 stocks during Monday’s painful sell-off

warren buffett
Warren Buffett.

  • Warren Buffett probably took a $6-billion hit on four stocks during Monday’s sell-off.
  • The investor’s Apple, Bank of America, Coca-Cola, and American Express stakes fell in value.
  • Buffett’s Berkshire Hathaway has made over $150 billion in total gains on those positions.
  • See more stories on Insider’s business page.

Warren Buffett likely suffered a $6 billion blow to his stock portfolio on Monday, as four of his biggest holdings slumped in value during the painful market sell-off.

The investor’s Berkshire Hathaway conglomerate counts Apple, Bank of America, American Express, and Coca-Cola among its largest positions. Those four stocks fell between 1% and 4% on Monday, wiping about $5.9 billion off the combined value of Buffett’s stakes in those companies.

Berkshire boasted 887 million Apple shares at the last count. Assuming he hasn’t touched that holding, it slid in value by $3.5 billion on Monday. The conglomerate also took a $1 billion hit on Bank of America, a $2.7 billion hit on Coca-Cola, and a $1.1 billion hit on American Express.

Buffett won’t be too bothered, as he famously focuses on long-term performance, and has already made a fortune on those stocks. For example, Berkshire spent $36 billion to build an Apple stake worth $126 billion today, more than tripling its money on paper.

The investor’s company also spent $1.3 billion for Coca-Cola stock worth $22 billion today – a roughly 17-fold gain. Moreover, its $25 billion stake in American Express has a cost base of $1.3 billion, and it spent about $15 billion to amass a Bank of America position worth $37 billion today.

Overall, Buffett’s total unrealized gains on those four stocks exceed $150 billion – more than the market capitalizations of Starbucks ($136 billion), IBM ($123 billion), or Goldman Sachs ($120 billion).

Buffett concentrates his money in a few key investments instead of spreading it across hundreds of them, boosting his returns when his bets pay off, but also exposing him to sharper declines. Apple has made up 45% of the total value of Berkshire’s stock portfolio in recent weeks, and the conglomerate’s top five holdings have accounted for 75%.

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The investor responsible for Warren Buffett’s 25x gain on BYD just sold $320 million of the electric-vehicle maker’s stock

Warren Buffett
Warren Buffett.

  • Li Lu’s Himalaya fund sold 15% of its BYD stake in two days, netting about $320 million.
  • Li encouraged Warren Buffett and Charlie Munger to invest in the Chinese automaker in 2008.
  • BYD’s stock price is down about 5% this year after soaring 400% in 2020.
  • See more stories on Insider’s business page.

Li Lu introduced Warren Buffett and Charlie Munger to BYD, one of the pair’s best investments over the past decade. The fund manager seems less bullish on the Chinese electric-vehicle maker today, given he recently cashed out more than $300 million of its stock in the space of two days.

Li’s Himalaya Capital Management sold 7.1 million shares for around $29 each on July 8, and disposed of another 3.6 million shares at a similar price on July 9, Hong Kong stock-exchange filings show. The sales reduced its BYD stake by 15% to 62.9 million shares.

Himalaya raked in nearly $320 million from the sales, leaving it with a stake worth $1.7 billion at the last count. BYD’s Hong Kong-listed shares have slid by about 5% this year after surging roughly five-fold in 2020.

Himalaya didn’t immediately respond to a request for comment from Insider.

BYD counts Himalaya as its second-largest shareholder after Buffett and Munger’s Berkshire Hathaway conglomerate, according to the automaker’s latest annual report. Li originally told Munger about BYD, spurring Berkshire in 2008 to spend $232 million for 225 million shares of the company – a stake worth over $6 billion today.

Munger – Buffett’s business partner and Berkshire’s vice-chairman – has effusively praised the Himalaya boss in the past. He dubbed Li “the Chinese Warren Buffett” in 2019, revealed the fund manager was the only outsider he’s ever trusted to invest his money, and said in 2010 it was a “foregone conclusion” that Li would eventually hold a leading role at Berkshire.

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Elizabeth Warren wants to investigate Warren Buffett and other billionaires’ tax practices – and probe the banks and wealth managers behind them

Warren Buffett
Warren Buffett.

  • Sen. Elizabeth Warren criticized Warren Buffett’s tax practices in an open letter.
  • The senator wants an investigation into how banks and wealth managers enable tax avoidance.
  • ProPublica recently reported how Buffett and other billionaires minimize their tax bills.
  • See more stories on Insider’s business page.

Billionaires aren’t paying their fair share of taxes, and the banks and wealth managers enabling them should be investigated, Sen. Elizabeth Warren and Sen. Sheldon Whitehouse said in an open letter on Wednesday.

Warren and Whitehouse wrote to Ron Wyden, the chairman of the Senate’s finance committee, after ProPublica obtained the tax records of many ultra-wealthy Americans and published some of its findings.

The lawmakers highlighted the non-profit journalism outlet’s “deeply troubling allegations” that billionaires have borrowed huge sums against their companies’ stock to fund their lavish lifestyles, then deducted the interest on those loans from their taxable income, meaning they’ve paid zero federal income tax in some years. Borrowing also spares them from having to sell stock and incur capital-gains taxes.

The senators called out Warren Buffett, the famed investor and Berkshire Hathaway CEO, for paying taxes equivalent to less than 0.1% of the $24 billion increase in his wealth in 2018. They also noted that Amazon founder Jeff Bezos claimed a $4,000 child tax credit and reported a loss on his tax return in 2011, when he was worth $18 billion.

“This tax avoidance by the nation’s wealthiest individuals is profoundly unfair,” Warren and Whitehouse wrote. The pair argued that billionaires shortchanging the government prevents it from investing in education, healthcare, infrastructure, and the environment. It also exacerbates inequality, distorts the US economy, and results in an unfair tax burden for low-income and middle-class families, they added.

While the vast majority of the ultra-wealthy’s tax practices are legal, they allow those individuals to “reap billions from their investments and live lives of privilege that are beyond the imagination of most families,” the lawmakers said.

Warren and Whitehouse called on Wyden and his committee to investigate the matter, hold hearings, and craft new laws to prevent tax avoidance. In particular, the pair urged them to investigate the large financial institutions that provide large, cheap, stock-backed loans to the super rich, letting them live on borrowed money instead of taxable income.

While the senators singled out Buffett, there’s no indication the investor borrows money to fund his relatively modest lifestyle, or has ever paid zero federal income tax. ProPublica said the billionaire minimizes his tax bill by not paying a dividend and keeping his wealth in Berkshire stock. Yet his shareholders have overwhelmingly voted against a dividend, and long-term stock ownership is a key element of Buffett’s investing philosophy.

Moreover, Buffett has called for higher taxes on the wealthy, and recently reached the halfway point in his goal of gifting 99% of his fortune to good causes.

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Warren Buffett reversed plans to buy a $1.3 billion pipeline to avoid antitrust scrutiny – and its shows how the rich and powerful see Washington’s growing regulatory threat

warren buffett
Warren Buffett in 2019.

  • Warren Buffett’s Berkshire Hathaway abandoned plans to buy a $1.3 billion natural gas pipeline.
  • Buffett’s energy company operates in states where the pipeline runs, which seller said the FTC could have used to block the deal.
  • The abandoned purchase signals that Buffett sees a growing federal regulatory threat.
  • See more stories on Insider’s business page.

Washington’s beefing up its antitrust regulatory muscle, and billionaire investor Warren Buffet is seemingly well aware of it.

The Berkshire Hathaway owner’s energy subsidiary said Monday it’s throwing out plans to buy a $1.3 billion natural gas pipeline that operates in 16 states, including Utah, Wyoming, and Colorado. Those are territories where his subsidiary’s energy company also runs, as CNN noted.

Berkshire Hathaway owning two pipelines that serve customers in the same states could have raised eyebrows from the Federal Trade Commission, which the company and the pipeline’s seller acknowledged in a Monday press release.

“The decision is a result of ongoing uncertainty associated with achieving clearance from the Federal Trade Commission under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,” Dominion, which was set to sell its Questar Pipelines to the company, said.

Dominion said it already sold gas transmission and storage assets to Berkshire in November, a deal that won’t be affected by the pipeline purchase termination and that was originally worth $4 billion, plus $5.7 billion that Berkshire Hathaway agreed to take on in debt.

Berkshire Hathaway Energy and Dominion declined to comment on this story.

Both Buffett and Dominion backing away from the pipeline deal shows that even the rich and powerful understand the regulatory threat currently posed by the US government – specifically from the FTC.

The agency is now helmed by Lina Khan, a big tech critic whose extensive antitrust law background has reshaped modern-day antitrust discussion. Khan, a Democrat, is joined by two other Democratic commissioners and two Republicans.

Apart from the FTC’s new make-up, lawmakers are also zeroing in on reshaping antitrust regulation in the US. Congress unveiled a package of five bills in June that are intended to keep big tech companies from becoming too large and powerful.

And just last week, President Joe Biden signed an executive order to combat corporate consolidation, or mergers, in the US economy, a move the administration said would increase healthy competition.

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Warren Buffett allowed Ndamukong Suh to shadow him for several weeks. The NFL star shared his 3 key takeaways

Ndamukong Suh and Warren Buffett
Ndamukong Suh and Warren Buffett.

  • NFL star Ndamukong Suh shadowed Warren Buffett for several weeks in 2010.
  • The Tampa Bay Buccaneers player said every meeting was 100 times more valuable than a MBA.
  • Suh’s main takeaways were to keep things simple, focus on passions and people, and stay curious.
  • See more stories on Insider’s business page.

Warren Buffett allowed Ndamukong Suh to shadow him for several weeks in 2010. The Tampa Bay Buccaneers star told the story of how he landed the gig, and detailed his three main takeaways, in a recent Twitter thread.

Buffett was an honorary captain during Suh’s senior game at the University of Nebraska-Lincoln. The famed investor and Berkshire Hathaway CEO stopped by the locker room to greet the players, including Suh. The future NFL player tweeted that their two-second meeting changed his life, and his “entire world would be different if it hadn’t happened.”

Suh asked Tom Osborne, UNL’s athletic director and a former congressman, to set up a meeting between him and Buffett. The investor hosted Suh at Berkshire headquarters a few months later, and happily consented to Suh shadowing him.

The defensive linesman was able to join several of Buffett’s meetings as a result. He had a front-row seat to the investor crafting a deal with 3G Capital – a Brazilian private-equity group and Berkshire’s partner on the Kraft-Heinz merger a few years later.

“Each time we met was a masterclass worth 100x more than an MBA,” Suh tweeted about his time with Buffett.

The football player took three key lessons from the billionaire that have underpinned his approach to business and investing ever since. Those were to keep things simple, focus on passions and people, and always read, learn, and remain curious about the world.

The six-foot-four, 305-pound lineman also joked about his staged arm-wrestling matches with Buffett in recent years.

“No matter how many times we do it, I still can’t beat him!” he tweeted. “Must be all that Coca-Cola.”

Suh told CNBC in January he tries to catch up with Buffett every quarter, as he’s gearing up for an investing career after he retires from football, and wants his mentor’s advice.

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Warren Buffett warned the Bill & Melinda Gates Foundation’s CEO about the ‘ABCs.’ The investor has flagged those threats before

bill gates warren buffett dairy queen
Warren Buffett and Bill Gates.

  • Warren Buffett warned the Bill & Melinda Gates Foundation’s CEO about the “ABCs” last year.
  • The investor sees arrogance, bureaucracy, and complacency as major threats to large organizations.
  • Buffett, who has gifted $33 billion to the foundation, once called the ABCs “corporate cancers.”
  • See more stories on Insider’s business page.

Warren Buffett told the CEO of the Bill & Melinda Gates Foundation that the greatest threats to the philanthropic behemoth were cockiness, red tape, and self-satisfaction. The billionaire investor and Berkshire Hathaway CEO, who has gifted a total of $33 billion to the foundation and resigned as its trustee in June, has warned about those forces in the past.

Mark Suzman took charge of the Gates Foundation early last year, and promptly flew to Buffett’s hometown of Omaha, Nebraska to have lunch with the investor and seek his guidance.

“He told me then that my most important job was to guard against the ‘ABC’ risks of decay that all very large organizations face: arrogance, bureaucracy, and complacency,” Suzman wrote in a recent email to the foundation’s employees.

Buffett pledged in 2006 to donate over 99% of his wealth to the Gates Foundation and four other foundations, and reached the halfway mark towards that goal in June. His advice to Suzman isn’t surprising; he wrote in his 2014 letter to Berkshire shareholders that when he retires, a big part of his replacement’s job will be warding off those exact threats.

“My successor will need one other particular strength: the ability to fight off the ABCs of business decay, which are arrogance, bureaucracy and complacency,” Buffett said. “When these corporate cancers metastasize, even the strongest of companies can falter.”

The Berkshire chief went on to highlight General Motors, IBM, Sears Roebuck, and US Steel as examples of corporate titans that once appeared to have unassailable grips on their industries. “The destructive behavior I deplored above eventually led each of them to fall to depths that their CEOs and directors had not long before thought impossible,” he said.

Buffett noted in the letter that he structured his company to minimize red tape. Berkshire’s decentralized web of autonomous subsidiaries, underpinned by a culture of trust, acts as the “ideal antidote to bureaucracy,” he said. Berkshire also saves money and boosts efficiency by not having HR, PR, IR, legal, acquisitions, and other departments in its headquarters, he added.

The investor singled out the “B” in the ABCs again in his 2009 shareholder letter.

“We would rather suffer the visible costs of a few bad decisions than incur the many invisible costs that come from decisions made too slowly – or not at all – because of a stifling bureaucracy,” Buffett said.

Given Buffett’s clear disdain for the ABCs, it’s no surprise that he told Suzman that his primary focus should be preventing the Gates Foundation from succumbing to them.

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Billionaire investor Seth Klarman bets $200 million on Outbrain ahead of the ad-tech group’s IPO

Seth Klarman
Seth Klarman.

  • Seth Klarman’s Baupost has invested $200 million in Outbrain ahead of the ad-tech group’s IPO.
  • The billionaire investor’s hedge fund bought Outbrain bonds that might be convertible into stock.
  • Baupost bet on online advertising last year by investing in Google-parent Alphabet and Facebook.
  • See more stories on Insider’s business page.

Billionaire investor Seth Klarman has plowed $200 million into Outbrain ahead of its planned IPO, the advertising-technology group revealed this week in an amended registration statement.

Outbrain sold $200 million worth of bonds to Klarman’s Baupost Group hedge fund in a private placement on July 1, two days after publicly filing to join the stock market. Baupost can exchange the bonds for convertible notes, which can be swapped for common stock under “certain circumstances,” Outbrain’s updated filing to the Securities and Exchange Commission said.

Baupost – which manages about $31 billion of assets – shares Outbrain’s “vision and commitment for our business, our team and our future prospects,” Outbrain’s co-CEO David Kostman said in a press release about the investment.

An ad-tech company that places recommendation feeds on websites might seem like an unusual bet for Baupost. After all, Klarman’s nickname is the “Oracle of Boston” because he follows a similar value-investing approach to Warren Buffett’s, and many see him as the spiritual successor to the Berkshire Hathaway CEO.

However, Baupost invested in Google-parent Alphabet and Facebook early last year, and held a combined $984 million of the pair’s shares at the end of March, suggesting it has warmed to the online-advertising space.

Baupost is also following Berkshire’s example by striking a deal with a private business. Buffett’s company agreed to plow $570 million into Snowflake when the cloud-data platform listed last year, and recently injected $500 million into Nubank as part of the Brazilian fintech’s latest funding round.

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