Warren Buffett started giving away his Berkshire Hathaway (BRKA -0.75%) (BRKB -0.54%) shares 20 years ago, but the legendary investor is speeding up the process. Last month, Buffett announced his plans to dispose of his remaining shares between now and Dec. 31, 2034.
On the same day as the press release, Buffett converted $6 billion in Berkshire Class A shares into Class B shares and donated them to several private foundations.
Interestingly enough, for the first time in 20 years, Buffett gave nothing to the Gates Foundation, opting instead to give only to various affiliated foundations, including The Susan Thompson Buffett Foundation, as well as the private foundations run by each of his three children.
While there’s rampant speculation about why Buffett skipped out on the Gates Foundation this time, there is one more pertinent question on the minds of Berkshire Hathaway stock investors: How will this accelerating transfer of Buffett’s stake impact the company and its shares moving forward?
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Buffett and the big transfer
Currently, the Oracle of Omaha holds a 13.2% economic interest in Berkshire Hathaway. This position is worth around $140 billion, implying that Buffett will give away an average of $17.5 billion each year for the next eight years.
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However, it’s as if these shared, once transferred, will immediately hit the market. The Internal Revenue Service (IRS) may require private foundations to donate 5% of their overall assets annually.
While Securities and Exchange Commission (SEC) filings from The Gates Foundation suggest that it has sold off the bulk of the $47 billion in Berkshire shares it has received over the past 20 years , Buffett’s family foundations may opt to hold on to their gifted positions.
Even if the family foundations liquidate their positions, this is likely to happen gradually. Furthermore, Berkshire’s present and future share repurchase plans could mitigate the impact of some of these shares hitting the open market.
A shift, but not necessarily a dramatic one
At the same time Buffett is initiating this great transfer, Berkshire Hathaway is seemingly shifting back to “buyback mode.” According to published reports, the company has bought back between $5 billion and $11 billion worth of its own shares.
Berkshire has typically repurchased shares when it believes the company is trading below its intrinsic value. With nearly $400 billion in cash on hand, the company has plenty of capital it could return to investors. That said, it’s not as if newly appointed CEO Greg Abel is looking to “dismantle” the Berkshire empire or even shrink it.
Although it still sits on a relatively large cash reserve, the company, under new leadership, has continued to make major deals and investments so far this year. Major transactions include Berkshire’s $8.5 billion acquisition of Taylor Morrison and its $10 billion participation in Alphabet‘s $80 billion equity offering.
In short, while Berkshire’s ownership may shift between now and 2034, it’s not necessarily a dramatic one. Until subsequent developments suggest otherwise, don’t expect Buffett’s large transfer to materially affect the company’s corporate governance, strategy, or price action.
