Berkshire buy back article updated with Warren Buffett's views on buybacks.
NEW YORK (
on Monday said that it plans to use cash on hand to buy back Class A and Class B shares at a premium of not more than 10% over the then-prevailing book value.
The move reflects the management's view that the stock is undervalued, according to a company statement.
"In the opinion of our Board and management, the underlying businesses of Berkshire are worth considerably more than this amount, though any such estimate is necessarily imprecise," Berkshire said in a statement. "If we are correct in our opinion, repurchases will enhance the per-share intrinsic value of Berkshire shares, benefiting shareholders who retain their interest."
The company did not specify the size of its buyback program but said the repurchases will not be made if it reduces Berkshire's consolidated cash holdings below $20 billion.
The buyback program is expected to continue "indefinitely" and the amount of purchases will depend upon the "levels of cash available, the attractiveness of investment and business opportunities either at hand or on the horizon, and the degree of discount from management's estimate of intrinsic value," the company said.
Shares of Berkshire Hathaway class B shares were climbing 6% to $70.38 during Monday trading.
Warren Buffett has said in the past that he would buy back shares only if he believed that it was selling well below intrinsic value.
Writing in his 1999 annual letter to Berkshire Hathaway shareholders, Buffett noted, "Rationally, a company's decision to repurchase shares or to issue them should stand on its own feet. Just because stock has been issued to satisfy options -- or for any other reason -- does not mean that stock should be repurchased at a price above intrinsic value. Correspondingly, a stock that sells well below intrinsic value should be repurchased whether or not stock has previously been issued (or may be because of outstanding options). We will not repurchase shares unless we believe Berkshire stock is selling well below intrinsic value, conservatively calculated."
Buffett continued, "You should be aware that, at certain times in the past, I have erred in not making repurchases. My appraisal of Berkshire's value was then too conservative or I was too enthused about some alternative use of funds. We have therefore missed some opportunities -- though Berkshire's trading volume at these points was too light for us to have done much buying, which means that the gain in our per-share value would have been minimal."
--Written by Shanthi Bharatwaj in New York. Eric Rosenbaum contributed to this article.
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