Everything Warren Buffett: CNBC: Charlie Munger's Wesco Soars on Buyout Offer by Warren Buffett's Berkshire Hathaway

Friday, August 27, 2010

CNBC: Charlie Munger's Wesco Soars on Buyout Offer by Warren Buffett's Berkshire Hathaway

Published: Thursday, 26 Aug 2010 | 1:41 PM ET

By: Alex Crippen
Executive Producer

Charlie Munger in an April 2010 CNBC interview.

Shares of Charlie Munger's Wesco Financial spiked as much as 19 percent higher today (Thursday) to $387/share after Warren Buffett's Berkshire Hathaway revealed plans to buy the almost 20 percent of Wesco it doesn't already own.

Munger, Buffett's long-time friend and business partner, is Wesco's Chairman of the Board.

Wesco's independent directors and non-Berkshire shareholders still need to approve the transaction.

Wesco shares have settled back a bit from today's high, but is still up almost 13 percent at $366 as of 1:30p ET today.

Current price: [WSC 363.00 38.25 (+11.78%) ]

Berkshire is proposing to pay Wesco's book value per share at the time the deal closes. Dow Jones notes that at the end of the second quarter, book value was around $353 per share, but has probably changed since then. Even so, it appears Wesco's market price was well below its book value at the time of the offer, resulting in today's surge.

The stock is still well below its 52-week high of $416 on March, 10, 2010.

In a filing with the SEC, Berkshire says:

"Berkshire’s management determined (on August 25) to propose to Wesco a cash-stock election transaction in which it would acquire the remaining 19.9% of the shares of Wesco that it does not presently own in exchange for Berkshire Class B shares and/or cash valued at the book value per share of Wesco as of a time reasonably contemporaneous with the closing of such a transaction."

Berkshire has owned 5.6 million Wesco shares for over three decades. That represents 80.1 percent of Wesco's shares outstanding.

While Munger plays a terse and crusty sidekick role with Buffett at Berkshire's annual shareholder meetings, he's the star at Wesco's smaller annual meetings. Like Buffett, he writes an annual letter to shareholders about the company's performance.

Munger has been very critical of the behavior of most Wall Street firms' behavior leading up to the 2008 financial crisis, telling our Becky Quick last year that "evil and folly" on the part of the banks and bankers have "helped create a catastrophe for everyone."

This year he had especially harsh words for Richard Fuld, the man at the top of Lehman Brothers when it collapsed. He did tell us, however, that he's been "favorably impressed" by Goldman Sachs chief Lloyd Blankfein, even as the firm faced SEC charges.

In February, Munger's Basically, It's Over parable about "how one nation (Basicland) came to financial ruin" criticized excessive "gambling" in the financial markets. By the end of the story, Basicland's credit is "reduced to tatters" and the fictional country is renamed Sorrowland.

Asked what happens when there's a fundamental disagreement with Charlie, Buffett told us during a live appearance on CNBC's Squawk Box in March:

"Well, what Charlie always says to me is he's--when we disagree--he says, 'Well, Warren,' he says, 'you'll see it my way because you're smart and I'm right.' That's his technique. But pretty much in--if we really disagree on something, we're not going to do it. But if I like something, he just grumbles and mumbles and, you know, says, 'That's kind of a dumb idea,' where I go ahead and do it."

Munger gets the credit for suggesting Berkshire's so-far extremely profitable investment in BYD, a Chinese electric car company.

Current Berkshire stock prices:

Class B: [BRK.B 76.37 --- UNCH (0) ]

Class A: [BRK.A 114433.0 --- UNCH (0) ]