And now, the main event…

Once upon a time, when I was a banker, one of my responsibilities was to come up with actionable ideas for companies that private equity firms could invest in or buy outright. This was decades ago, mind you, when private equity firms were known as L.B.O. businesses—very small and entrepreneurial shops filled with partners willing to listen to a banker who might have a random idea that could be spun into gold for their L.P.s or G.P.s. It was a weird assignment: If the idea hit, the unstated arrangement was that the firm would hire me and the bank to advise on the deal and provide financing.

It didn’t always work that way, of course, but the old muscle memory kicked in last week as Warren Buffett, aged 95, finally served his last day atop Berkshire Hathaway and formally handed the reins to Greg Abel, his chosen successor. Abel, who is 63, now faces one of the most exalted and daunting responsibilities in the world of finance: determining what to do with the astounding $358 billion in dry powder bequeathed to him by the most legendary investor of his generation. So, as a former M&A banker once tasked with coming up with wacky acquisition targets for companies, allow me to humbly propose a few ideas. (Full disclosure: I’m a longtime Berkshire Hathaway shareholder myself. This is not investment advice.)

First, of course, any acquisition ought to be big: Berkshire Hathaway, after all, is now a $1 trillion market cap company. Buying a small company just won’t cut it, unless it’s an add-on to an existing Berkshire business, and maybe not even then. It also has to be an iconic company, one that has stood the test of time and the vicissitudes of various economic cycles. It should have a highly defensible position in the marketplace—a “moat,” so to speak—that would be extremely difficult for competitors to penetrate. Finally, it has to have a first-rate management team: Berkshire is really just a holding company for equity positions in other companies that continue to be run by their existing leadership.

As we all know, Warren spent the past few years doing very little on the acquisition front—preferring to be a seller, rather than a buyer, in this overheated market. (His primary focus had been futzing around with the $25 billion or so the firm has tied up in Occidental Petroleum.) So let’s move the needle for Berkshire. Herewith, three suitable big ideas for Greg Abel.

First up, Greg should buy Bloomberg L.P., which is probably valued around $125 billion these days. Mike Bloomberg, the controlling shareholder with 88 percent ownership and around a 91 percent voting stake, could run the company for another decade or more—his mother lived to be 102 years old. But he still needs to think about succession, as I wrote in November. As best as I can tell, Mike last commented on his plans for the future of Bloomberg L.P. at a climate summit in September 2023, where he revealed that his Bloomberg Philanthropies would inherit his stake in the company. But, he added, “because of tax laws,” the foundation will “have to get rid of it” within five years.

And what better buyer could there be than Berkshire Hathaway? The cash is there, even if it takes $150 billion or more to buy the whole thing. In the meantime, why not think about taking steps toward that long-term outcome, by selling a minority stake in Bloomberg L.P. to Berkshire? It sure seems like a perfect fit for Berkshire: There is obviously a highly competent management team, and it has a highly unique and seemingly impenetrable niche in providing real-time trading data to a loyal group of devoted customers willing to pay $30,000 a year to rent a Bloomberg terminal.

Yes, the Bloomberg terminal has competitors, such as a division of the London Stock Exchange and Capital IQ, a division of S&P Global, as well as FactSet. But there is little question that Bloomberg is the market leader. Bloomberg L.P. is a private company with minimal financial disclosure at best. If Bloomberg sells to Berkshire, as opposed to doing an I.P.O. or some other merger, chances are good that its financials can remain largely hidden in the overall Berkshire disclosure statements, assuming that might be a desirable outcome for Mike. To me, this seems like a match made in heaven between two billionaire moguls: Warren, with a net worth of around $150 billion, and Mike, with a net worth of around $100 billion. Go for it, Greg.

Okay, maybe that one won’t work for any number of reasons—maybe Mike isn’t ready to sell, or maybe Bloomberg L.P. has to sit with Bloomberg Philanthropies for some number of years for tax reasons. So let’s move on to something that could get done right now: Goldman Sachs. That’s right, for a mere $300 billion or so, Goldman Sachs can be yours, Greg. (It has a market cap of $270 billion, and I’m applying a premium.) The premium would normally be more, and maybe it will take more to get David Solomon and his board to sell to Berkshire—the folks at Goldman know something about selling companies—but the Goldman stock is up 55 percent in the past year, so it’s already had quite the run.

Would David sell Goldman Sachs? I have no idea, but Berkshire bestows a certain prestige on a company. Like Bloomberg L.P., Goldman seems like a classic Berkshire company: It has a long history, since 1869, of performing well through every manner of economic cycle, with a highly defensible position in its industry. Yes, there is plenty of competition in financial services, but Goldman Sachs has proved to be the gold standard of the industry through thick and thin.

Plus, Berkshire already has had a highly positive experience investing in Goldman Sachs. Back in 2008, at the height of the financial crisis, Warren invested $5 billion in Goldman through one of his patented preferred stock investments, with a 10 percent dividend—generating $500 million every year for Berkshire—plus warrants to buy another $5 billion of Goldman stock. It was a big vote of confidence from Warren in Wall Street and Goldman at a time when the financial system looked like it might implode. (Warren also invested in Bank of America and GE, after its big financial services arm floundered during the financial crisis.) By the time Warren sold out of Goldman completely, in 2020, he had reaped a profit of some $3.8 billion on his original $5 billion investment.

There are other precedents for this sort of transaction. Back in 1987, Buffett invested $700 million in Salomon Brothers, the big Wall Street investment bank, in the weeks prior to the 1987 stock market crash. Buffett acted as a so-called “white knight” for Salomon, which was facing a hostile takeover from none other than Ron Perelman. But things turned dark on the Salomon front four years later, when the firm found itself engulfed in a scandal involving the alleged manipulation of the market for Treasury securities. Buffett ended up becoming Salomon’s interim C.E.O. and then cleaned house before Salomon was eventually sold to Sandy Weill’s Travelers Group in 1997. It was an unpleasant 10-year saga for Warren, although he ended up making about $1 billion in profit on the sale of Salomon to Travelers.

Of course, Goldman now is not like Salomon Brothers then. Solomon runs a tight ship down at 200 West Street. Would David sell the company to Berkshire? Depends on the price, obviously. What better way for Goldman to end its 26-year tenure as a public company than by selling to Berkshire Hathaway and yet be able to keep strutting its stuff?

Berkshire also had a positive experience investing $3 billion in GE, just weeks after it invested $5 billion in Goldman. By the time Buffett finally exited the GE investment in 2017, he had made a profit of $1.5 billion, a 50 percent gain. Around the same time, he also invested in Synchrony Financial, a provider of private-label credit cards, that had been spun out of GE. He held a stake in Synchrony for about four years, generating a profit of around $200 million on his original $500 million or so investment.

I mention all this because I think a third opportunity for Abel would be buying the remains of GE in the wake of the spinoffs of its healthcare and power businesses. GE, of course, is no longer a conglomerate, as I documented in Power Failure, my 2022 book chronicling its rise and fall. What’s left of the original GE is known as GE Aerospace, the world’s largest manufacturer and servicer of jet engines, found in three out of every four commercial flights globally. The moat around GE Aerospace is quite large and nearly impenetrable. In other words, another perfect potential Berkshire Hathaway acquisition candidate.

The problem is that GE Aerospace now has a market cap of $333 billion, so it would use up every bit—and more, probably—of Berkshire’s cash hoard if Greg decided to buy it. It would be, by far, the largest acquisition in history, and by far Berkshire’s largest acquisition. And unlike Goldman, which has a price-to-earnings ratio of around 18, GE Aerospace has gotten quite pricey. The stock is up 132 percent since it became the successor company to GE in April 2024, and its P/E ratio is more than 40x. Still, it does strike me as just the kind of company Berkshire should own—a technological leader in a capital-intensive and ever-growing and changing industry, with few competitors. (It operates in a “duopoly of duopolies,” or so it’s said—a very big moat indeed.) It could be done, but only if Greg decided to shoot the moon.

I suspect that Greg—and Warren, who remains chairman of the Berkshire board of directors—will have any number of reasons not to do any of the three deals suggested above. But the cash hoard is sitting there, earning perhaps 4 or 5 percent a year from short-term U.S. Treasury bills and other cash equivalents. It could be earning much more than that if Berkshire were to step up and swing for the fences by buying one of these companies. And Greg probably has to make some sort of move early on, so that the market knows Berkshire Hathaway still has a pulse.

Need help? Review our FAQ page or contact us for assistance. For brand partnerships, email ads@puck.news.

You received this email because you signed up to receive emails from Puck, or as part of your Puck account associated with {{customer.email}}. To stop receiving this newsletter and/or manage all your email preferences, click here.

Puck is published by Heat Media LLC. 107 Greenwich St., New York, NY 10006