Berkshire Hathaway Inc. Chairman Warren Buffett is ready to spend $40 billion to $60 billion on an acquisition, and his opportunities are expanding as stocks fall and leveraged buyouts dry up.
Shares of health insurers, steelmakers and department stores are as much as 19 percent cheaper than in May, when Buffett said he would "figure out a way" to come up with $60 billion for the right deal.
WellPoint Inc., Nucor Corp., Kohl's Corp. and dozens more companies are now closer to meeting his investment criteria.
Nucor has both a Vulcraft steel joint plant and a cold-finish plant in Brigham City and a bar mill in Plymouth.
"A time of turmoil among conventional investors on Wall Street is helpful for Berkshire Hathaway," said Thomas Russo, who helps manage more than $3 billion, including Berkshire shares, at Gardner Russo & Gardner in Lancaster, Pa. Buffett's "patience has put him in a position where he certainly has the capacity to act."
Buffett, 76, would have no trouble funding purchases because his Omaha, Neb.-based company has $46 billion of cash. LBO firms, which have agreed to $700 billion of takeovers this year, face higher borrowing costs and skittish investors who won't buy the loans and bonds they need to finance an average two-thirds of their deals.
"If he can pull off a big acquisition, it creates a lot of value," said James Armstrong, president of Pittsburgh-based Henry H. Armstrong Associates, whose biggest holding is Berkshire. The shares, which rose at an annual rate of 21 percent over the past two decades, have gained less than 1 percent this year.
Buffett declined to comment.
Buffett built Berkshire into a holding company with a $169 billion market value over four decades, using premiums collected from insurance units such as Geico Corp. to fund investments and takeovers.
"We will need major acquisitions" to produce "truly satisfactory" earnings growth, Buffett wrote last year in his annual report. Investors shouldn't expect the 2006 gains from the company's insurance units to be repeated, he said in March.
Buffett set his takeover sights higher in May, when he said Berkshire would spend as much as $40 billion to $60 billion, even selling some of its stock holdings to finance an acquisition if available cash isn't enough. In annual reports as far back as 1998, he told investors he was looking for a $5 billion to $20 billion deal.
His investment criteria include companies with "good returns on equity," little or no debt, "simple" businesses that he can understand, and consistent earnings, Buffett said in his latest annual report.
Berkshire disclosed in May that it owned 979,000 shares, or 0.16 percent, of Indianapolis-based WellPoint, the second-biggest U.S. health insurer. Shares of the company, which has a market value of more than $45 billion, fell 6.5 percent over three months through Thursday. WellPoint now trades at less than two times book value, or assets minus liabilities. Its earnings increased at an annual rate of 24 percent since 2001.
Buffett disclosed in March that Berkshire held a 4 percent stake in South Korea's Posco, Asia's third-largest steelmaker. The company has a market value that's the equivalent of $49.7 billion.
Nucor, the second-largest U.S. steel company, with a market value of $15.3 billion at Thursday's close, was down 22 percent since May. Earnings at the Charlotte, N.C.-based company rose to more than $1.7 billion in 2006 from $162 million in 2002. Nucor's debt equals less than 20 percent of its equity.