1995 Annual Meeting
Meeting covering preferred stock authorization, acquisition currency options, and Berkshire's flexible capital structure approach
1995 Annual Meeting
Date: 1995 Location: Omaha, Nebraska Attendees: Warren Buffett (65), Charlie Munger (72) Source: Full Transcript
Overview
The 1995 annual meeting focused primarily on the authorization of preferred stock, giving Berkshire more flexibility in acquisition transactions. Buffett explained that preferred stock was simply another "currency" option when acquiring businesses, and addressed shareholder concerns about dilution.
Opening
Buffett welcomed shareholders from near and far:
"We have people from Australia, Israel, Sweden, France, the U.K., 40-some from Canada. So, a lot of people have come a long way."
On the format:
"The format today is going to be just slightly different... We have one item to discuss on the preferred stock that I could tell caused some confusion with people."
Business Results
On Berkshire's position:
"The businesses are performing well. We're growing."
On insurance:
"Float is growing. We're well positioned."
Key Topics
Preferred Stock Authorization
The main business item was authorizing up to one million shares of preferred stock. Buffett explained:
On why it's needed:
"When we acquire businesses... sometimes the seller of the business wants cash. Sometimes they would like common stock... If the value of the consideration that we give equates, we really don't care what form of consideration we use."
On dilution:
"Only if we receive less in value than we give. That's the key to it... If we issue $200 million worth of preferred and we receive a business that's only worth $150 million, there's no question you're worse off than before."
On the flexibility:
"We can issue a straight preferred with a coupon that made it worth par at the time we issued it... We could issue them an adjustable-rate preferred... that may be more important to one seller or another."
Chain Letter in Reverse
Buffett criticized companies that issue stock at unfavorable prices:
"A number of companies... have issued common stock, particularly, which has a value greater than what they receive. And when they do that, they are running what I call a 'chain letter in reverse.'"
Munger added his perspective:
"Imagine hiring a manager who thinks that way and paying them money to behave like Judas in your very midst."
Berkshire's Acquisition Approach
On future deals:
"You may well see us issue, at some point... a convertible preferred. You may see us issue a straight preferred. You may see us issue an adjustable-rate preferred."
On value received:
"We're not going to give 120 percent of X if we're only willing to pay 100 percent of X, just because the form of a deal changes."
Accounting Treatment
Buffett addressed why Berkshire doesn't care about accounting treatments:
"We care not a wit about the accounting treatment that we receive. We feel that we have a shareholder body that's intelligent enough to understand the economic reality of a transaction."
Notable Quotes
"A chain letter in reverse."
"Only if we receive less in value than we give, you are diluted in terms of value."
"We care not a wit about the accounting treatment that we receive."
Key Themes
- Preferred Stock — Flexibility in acquisitions
- Dilution — Only matters when value isn't received
- Currency Options — Cash, common, preferred all possible
- Accounting — Economic reality over accounting treatment
- Seller Needs — Tailoring deals to seller preferences
Related
This summary captures the key topics from the 1995 transcript.