Wednesday, January 20, 2010

"Berkshire Options Trading May Outpace Cemetery Firm" (BRK.A; BRK.B)

UPDATE II: "David Sokol Interview at Berkshire Hathaway Special Meeting (BRK.A; BRK.B)"
"Berkshire stock split: Questions answered" BRK.B"'
Original post:
The shareholder meeting to vote on the split of the class B shares will start at 8:00 a.m. today.
As the hometown newspaper, the Omaha World-Herald, headlines it:

Not your usual Berkshire event

There's only one mystery surrounding today's special meeting of Berkshire Hathaway Inc. shareholders.

How many people will attend?

The meeting agenda has prompted no visible opposition, so shareholders likely will approve the only item of business: splitting Berkshire's Class B shares 50-1, effective Thursday morning, in preparation for next month's expected acquisition of Burlington Northern Santa Fe Corp....

...This meeting has no exhibits, probably a short Q&A session with Buffett and, most disappointing, no Munger.

Not to mention the 40-degree difference in temperature in Omaha between January and May, the aesthetic contrast between mounds of snow and springtime blossoms, budding leaves and green grass, and the contrast between warm weather and freezing rain....MORE


(image lifted from the Wall Street Journal)

Bloomberg looks at one intriguing aspect of the split:

Warren Buffett’s proposed 50-for-1 split of Berkshire Hathaway Inc. Class B shares may spur trading of the company’s options, which change hands less often than contracts for firms with 1 percent of its market value.

Berkshire stock has a market value of $155 billion, more than Boeing Co., Kraft Foods Inc. and Walt Disney Co. combined. Berkshire options traded less last year than cemetery-owner Stewart Enterprises Inc., with a value of $482 million, and had an average daily volume below Gaylord Entertainment Co., the $1.03 billion operator of the Grand Ole Opry theater in Nashville, Tennessee.

Traders use options, which give the right to buy or sell a security at a set price and date, to hedge risks and bet on stocks or indexes. Investors monitor them for indications about a company’s prospects by comparing different strike prices and maturities. An increase in Berkshire options trading would improve their accuracy as a forecasting tool, said John Farrall of PNC Wealth Management in Cleveland.

“The options world pays attention to volume and there hasn’t been any,” said Farrall, who helps oversee $104 billion as director of derivatives strategies. “There’s not a lot of good data now. With more options and shares traded hopefully we can get a better picture.”

Buffett, who is Omaha, Nebraska-based Berkshire’s chairman and chief executive officer, is asking investors today to approve the split for the company’s $26 billion acquisition of railroad Burlington Northern Santa Fe Corp. Each Class B share would be valued at $66.64, based on yesterday’s closing price of $3,332. The split would reduce the number of partial shares Berkshire would need to issue to holders of Burlington stock.

‘Some Real Liquidity’

Buffett created the equities in 1996 by dividing Class A shares by 30 to prevent fund managers from carving them up in trusts and selling lower-priced interests. The B shares have never traded below $990.

A lower stock price will make the options and the underlying Class B shares easier and cheaper to trade, said Steve Sosnick, equity risk manager at Timber Hill LLC, the market-making unit of Greenwich, Connecticut-based Interactive Brokers Group Inc.

“It has the potential, because it’s a household name and a hugecap stock, to get some real liquidity,” said Sosnick. He said splitting the shares may reduce the so-called spread between the buyer’s bid and the seller’s asking price. “For the options, it’s going to be wonderful,” he said....MORE

Hugecap. I like it.