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Greenberg: Break Up Berkshire Hathaway?

By: Herb Greenberg | 04/30/14 - 01:59 PM EDT

Stocks in this article: BRK.B,BRK.A

SAN DIEGO (TheStreet) -- One of the great veteran forensic analysts, Ted O'Glove, is out with a piece on The Motley Fool suggesting that it's time to start thinking about breaking up Berkshire Hathaway (BRK.B).

For those of you who don't know O'Glove, a quick backgrounder: He's best known as the author of Quality of Earnings, long considered a must-have in the library for for serious investors. He wrote it in 1987. Earlier he was best known for co-authoring the Quality of Earnings Report with Bob Olstein, who now runs Olstein Funds.

At 80, a few years younger than Berkshire CEO Warren Buffett, O'Glove can spot a fad, and a good investment, a mile away. He can read the footnotes better than anybody

He's a huge fan of Berkshire and Buffett, which is why his piece is so interesting.

From the piece:

At this time, Buffett is one of the world's most successful corporate executives ever. Between 1964 and 2013, Berkshire's book value has grown an incredible 693,518%. At the same time, the S&P 500, with dividends included, returned 9,841%. With outperformance like that, no wonder Buffett's shareholders revere him.

According to the October 27, 2003 edition of Barron's, there were four individual billionaire shareholders and many more shareholders whose Berkshire stock was worth over a million dollars. Since the publication of that article, the price of those shares has more than doubled.

Berkshire doesn't pay a common-stock dividend, and every year at the annual meeting, there is a contingent of investors who ask whether it's finally time for that to change. Buffett's reply has remained constant: "Absolutely not." His stance is that the book value of the company today is considerably higher than it would have been if Berkshire had been paying dividends.

While that stance may have been beneficial to Berkshire shareholders in the past, I don't believe it's true any longer. Berkshire has simply become too large to create sustainable market-beating returns for investors and much of the value of the company is hidden within its conglomerate structure.

By breaking up the company via spinoffs of the 57 wholly and partially owned subsidiaries listed on its Web site -- and becoming "a distributor instead of an acquirer" -- Ted believes five things will happen: Value will be unlocked, investors will get the tax advantage that comes with spinoffs, the separated companies would create a dividend bonanza, the "liberated" companies would be free to acquire and the spinoffs themselves would create spinoffs.

O'Glove concludes by writing:

The combination of Warren Buffett and Berkshire Hathaway is undoubtedly one of the most impressive business stories of our lifetime. And Buffett has created an incredible amount of value for his loyal shareholders over the years. But now is the time to show the investment world just how much value there is in Berkshire by breaking the conglomerate apart.

Talk to anybody who knows Buffett and the reaction is likely to be the same: Dream on! The businesses owned by Berkshire, one person who knows him told me, "are like his kids."

And Ted gets that. "Berkshire is a great holding that will underperform on the upside but do great on the downside. It will not go down nearly as much as the market. If the market goes down 15%, it will go down 14%. And you have a kicker here because some day the inevitable will happen: I say it may be 10 or 12 years from now," making it a perfect holding today, he says, for younger investors.

Reality: Nobody can predict the future but this much is clear: Betting with Buffett has always been the wise choice. O'Glove is smart and seasoned, too. And for those with a timeframe of more than just a few minutes, the favored yardstick for today, he just may be on to something.

-- Written by Herb Greenberg in San Diego

Herb Greenberg, editor of Herb Greenberg's Reality Check, is a contributor to CNBC. He does not own shares, short or trade shares in an individual corporate security. He can be reached at herbonthestreet@thestreet.com.

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