Berkshire Takes Stake in Nextel

Updated from 7:48 a.m. EDT

Berkshire Hathaway'sBRK.A recent shine for telecom debt and preferred stock continues, with NextelNXTL being a big beneficiary, according to the latest filings.

As of June 30, Berkshire and subsidiaries of Warren Buffett's insurance-investment empire owned $468.6 million in Nextel notes and preferred shares, according to filings this week with the National Association of Insurance Commissioners.

The news sent Nextel's shares up $1.18, or 6.5%, to $19.24 Friday morning.

The purchases, which began in October 2002 and continued through at least June 26, are another example of Berkshire's recent interest in the beaten-down telecommunications industry. Berkshire has reported owning debt or stock of a handful of telecom concerns, including Level 3 CommunicationsLVLT and WilTel CommunicationsWTL, among others.

Berkshire and its Geico and General Re insurance subsidiaries purchased $68.2 million in 10.65% notes set to mature September 2007. These purchases were made in December and January. In December through May, Berkshire, Geico and General Re also purchased $110.6 million in 9.75% notes due October 2007. Berkshire and affiliates also bought $68.2 million in 9.95% senior notes due February 2008, $45.9 million in 9.375% notes due November 2009 and $14.3 million in 9.5% notes due February 2001.

Berkshire also purchased $161.5 million in Nextel preferred shares between October and June. Of the preferred stock, $105.3 million offered a 13% coupon rate with a 2009 maturity and $56.2 million carried an 11.125% coupon rate, maturing in 2010. The preferred shares carry either 11.125% coupons or 13% coupons. Since the filings only run through June 30, it wasn't clear if Berkshire was still acquiring Nextel debt or preferred stock. (Bloomberg reported $79 million in Geico's purchases of notes and preferred stock in April.)

Perhaps Buffett talks shop while playing bridge with his card mate, Bill Gates. The MicrosoftMSFT founder, through his personal investment vehicle Cascade Investments LLC, owns a 5.2% stake in Nextel PartnersNXTP, a U.S.-based affiliate of Nextel. Cascade first reported the stake, currently valued at about $93 million, in March 2002.

Because of Buffett's decades of market outperformance, the Sage of Omaha is revered as an investment deity whose every purchase draws close scrutiny. As investment banker and author Tom Taulli said in a Knight-Ridder article last year, "Whenever there is an announcement of Buffett investing in a company it almost be reflex becomes a good investment."

Nevertheless, one caveat about the Nextel purchases: It doesn't necessarily mean investors should run out and buy Nextel's stock. Berkshire and its entities are buying debt and preferred stock -- unlike common stock purchases, Berkshire's purchases offer a steady yield as well as downside protection in case Nextel goes bankrupt. A key Buffett investing tenet is to buy a dollar for 50 cents, which he has been able to do by dabbling in telecom debt. However, investors certainly won't replicate Buffett's returns simply by buying the stock. Take Berkshire's $500 million investment in Level 3 debt. The stock soared more than 50% on the news to $4.36 in one day when the investment was revealed in July 2002. But it's only at $4.45 now.

One other minor note: Adds Buffett watcher Robert Howard of the Positive Patterns newsletter: Geico purchases often get written up as "Buffett purchases," but the investing guru behind the auto insurer's portfolio is Lou Simpson, who heads the auto-insurance unit and is a potential Buffett successor. Simpson "doesn't get the press that Buffett gets, but he's a savvy investor," Howard said.