By Erik Holm Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--It has been quite a year for Warren Buffett, which means next year will be quite a year for Bill Gates.
Buffett, the world's third-richest man, has pledged to give the bulk of his fortune over several years to a foundation run by Gates, the second-richest. Buffett makes good on his promise each year on July 1 by handing over massive chunks of stock in his company, Berkshire Hathaway Inc. (BRKA, BRKB).
When Berkshire shares do well, the Bill & Melinda Gates Foundation is able to spend more on global health initiatives and U.S. education projects. When Berkshire shares suffer, the value of the donation--which is denominated in stock, not dollars--declines. This year, the stock has done very well.
The latest donation, based on the closing price of Berkshire's Class B shares on Thursday, should be worth about $1.6 billion. That would be an increase of about 28% from last year's $1.25 billion in shares.
A year ago, Berkshire stock was still reeling from the effects of the economic crisis. Buffett had sold derivatives tied to four stock indexes, and their value had fallen along with the markets. Berkshire's stock portfolio, which is largely handled by Buffett, had lost value, too.
The flagging economy had hurt Berkshire's operating units, cutting into sales at businesses that sell jewelry, make bricks and manufacture machine parts. And the company's plane-leasing operation had overextended itself and was losing money.
Those factors combined to make the value of Buffett's donation last year the smallest of the four he had made to date.
Since then, markets have rebounded. The derivative losses are reversing. Berkshire's stock portfolio--which includes companies such as Wells Fargo & Co. (WFC) and American Express Co. (AXP)--has risen in value. The plane-leasing unit has returned to profit after cost cuts. And other operating units are showing "significant improvement" as the economy recovers, Buffett said in May.
And in February, Buffett completed the largest acquisition in his four-decade career, the $27 billion takeover of Burlington Northern Santa Fe. A split of Berkshire's Class B shares, which he arranged to help pay for the takeover, paved the way for the firm to join the Standard & Poor's 500, which prompted funds that track the benchmark index to buy the stock.
The improvements in Berkshire's shares present the Gates Foundation--founded by Gates and his wife in 1994--with an enviable challenge: They have to spend it all. One of Buffett's conditions on his donation is that the foundation's annual giving must exceed the value of his previous year's gift.
Gates, co-founder of Microsoft Corp. (MSFT), has provided billions of dollars in funding to the foundation as well. All told, the group made grants totaling $3 billion last year to pay for vaccine research, farming projects, micro-finance efforts, teacher training and other charitable work, according to the foundation's website.
The total value of Buffett's donation--including the shares he has pledged to hand over in future years--was about $39 billion on Thursday. It is the largest charitable donation in history.
Lately, Buffett and the Gateses have lobbied their peers to give away more of their wealth. They announced a "Giving Pledge" last month, asking the nation's billionaires to publicly commit to donate at least half their wealth to philanthropic and charitable groups.
The effort comes after the second-straight year of record-setting declines in philanthropic giving. Donations fell 3.6% to $303.75 billion last year, down from $315 billion in 2008, according to the Giving USA Foundation. In 2008, donations were down 2%.
-By Erik Holm, Dow Jones Newswires
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