The recently appointed chief executive of Berkshire Hathaway, Greg Abel, has completed his inaugural major transaction since succeeding Warren Buffett, purchasing homebuilder Taylor Morrison for $6.8 billion in what may signal a shift away from the investment giant’s traditional hands-off approach.
In announcing the acquisition, Abel indicated plans to merge Taylor Morrison with Berkshire’s current site-built home construction operations under the Clayton Homes division. This represents a departure from Buffett’s six-decade practice of allowing acquired companies to operate independently under their existing management structures.
“We are excited to welcome Taylor Morrison into Berkshire’s portfolio, reflecting our long-standing commitment to housing, exemplified by Clayton Homes and our other building products businesses. Over time, we expect to unify our site-built homebuilding operations into a combined platform enabling us to deliver the dream of homeownership to more Americans,” Abel stated in the announcement.
Beyond Clayton, which focuses primarily on manufactured housing while maintaining a site-built division, Berkshire controls multiple housing-related enterprises including Benjamin Moore paint and Shaw Floors.
The extent of potential consolidation across Berkshire’s extensive portfolio remains uncertain. The conglomerate owns numerous companies spanning major insurance providers like Geico, manufacturing giants such as Precision Castparts, and various retail and service enterprises including NetJets, Dairy Queen and Helzberg Diamonds. However, Abel is recognized for being significantly more hands-on in his management style compared to Buffett.
“Given Greg’s strength as an operator it will be interesting to see if he does consolidate these units to get some greater scale and efficiencies,” said CFRA Research analyst Cathy Seifert.
Since 2018, Abel has supervised all of Berkshire’s non-insurance operations without implementing major operational changes, though he has promoted increased collaboration between subsidiaries when beneficial. Abel assumed the CEO position in January while Buffett continues as chairman and remains the company’s primary shareholder.
Investors are likely pleased to see Abel pursuing acquisitions given that the Omaha-headquartered corporation currently holds approximately $400 billion in cash reserves. While this particular transaction may not substantially impact Berkshire’s overall financial performance due to the company’s massive scale, dealmaking and investment activities were the aspects of Abel’s background that generated the most investor uncertainty.
During a Monday morning CNBC interview, Buffett offered praise for Abel’s performance.
“Greg did that faster than I could have done it, smoother than I could have done it, and I never talked to the CEO. He has launched,” Buffett told CNBC.
While Abel previously managed acquisitions during his tenure leading Berkshire’s substantial utility operations, those deals would have required Buffett’s approval. Abel now makes these decisions with guidance from Buffett and the board of directors.
“I think investors will cheer Greg’s foray into M&A as CEO. The purchase price seems rich given the current interest rate/macro environment,” Seifert said.
The agreement calls for Berkshire to pay Taylor Morrison shareholders $72.50 per share in an all-cash transaction. This represents a 24% markup over the company’s prior closing price of $58.50. Stock prices for the Scottsdale, Arizona-based homebuilder surged close to the purchase price Monday while Berkshire’s shares declined 1%.
Raymond James analyst Buck Horne noted in a research report that Berkshire might encounter competition from private equity companies or other potential purchasers willing to offer higher bids for Taylor Morrison before shareholders vote on accepting the current proposal.
“We would not be shocked if other players and/or private equity began to sharpen their pencils before the ink on this agreement is fully dry,” Horne said.
