Buffett tries to assure on health, mulled megadeal

OMAHA, Nebraska Sat May 5, 2012 11:52pm IST

Warren Buffett tours the trade show floor during the Berkshire Hathaway Annual shareholders meeting in Omaha, May 5, 2012. REUTERS/Lane Hickenbottom

Warren Buffett tours the trade show floor during the Berkshire Hathaway Annual shareholders meeting in Omaha, May 5, 2012.

Credit: Reuters/Lane Hickenbottom

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OMAHA, Nebraska (Reuters) - Warren Buffett tried to allay fears of Berkshire Hathaway Inc shareholders about the company's future after he was diagnosed with prostate cancer, and revealed that he recently tried to make one of the biggest acquisitions of his storied career.

The question of who will succeed Buffett, now 81, as chief executive has long been a focus of shareholders, and became more of an imperative after Buffett disclosed the diagnosis last month.

While Buffett called it "a really minor event," the diagnosis was a reminder that for all his success as an investor and all the plaudits he receives, Buffett is mortal and would be hard to replace at the company he has run since 1965.

That made the future of Berkshire, with or without Buffett, a key focus of questioning at the company's annual meeting in downtown Omaha, Nebraska, where close to 40,000 shareholders were expected to attend.

"I don't think that every deal that I made would necessarily be makeable by a successor, but they'll bring other talents as well," and must have the skills to be an effective chief risk officer, Buffett said. He nonetheless assured: "We're not going to have an arts major in charge of Berkshire."

Charlie Munger, who is Berkshire's 88-year-old vice chairman and sat beside Buffett, quipped: "I rather resent all this sympathy and attention that Warren is getting. I probably have more prostate cancer than he does."

Buffett also revealed that he recently considered a more than $20 billion acquisition, and would have sold some Berkshire stock holdings he wanted to keep to get it done.

"I wish we could have made it," he said. "It could happen. I don't think it will happen."

Buffett did not name the target. A takeover of that magnitude would have been close in size to Berkshire's biggest takeover -- the $26.5 billion purchase of railroad company Burlington Northern Santa Fe in 2010.

It would have also dented Berkshire's $37.83 billion cash hoard. Buffett said he wants to keep $20 billion on hand.

WAL-MART, POSSIBLE SUCCESSORS

Buffett also made a blunt assessment on a bribery scandal enveloping Wal-Mart Stores Inc (WMT.N), in which Berkshire held a $2.33 billion common stock stake at year end.

Last month, the New York Times said the retailer's majority-owned Wal-Mart de Mexico (WALMEXV.MX) unit ran a widespread bribery campaign in that country to win market dominance, and that senior Wal-Mart executives tried to cover it up.

"If you read the New York Times story, and there's always another side to it, it looks like they may well have made a mistake in how that was handled," Buffett said. He nonetheless said he did not believe the matter "changes the fundamental dynamic" about Wal-Mart or its earnings power.

Among the internal candidates seen as possible future Berkshire chief executives are Ajit Jain, Buffett's top insurance lieutenant; Matthew Rose, who leads Burlington Northern; and Greg Abel, who runs the MidAmerican Energy unit.

Tony Nicely, who runs the Geico auto insurance unit, has long been seen as a candidate, but is now in his late 60s.

Buffett has also hired two portfolio managers, Todd Combs and Ted Weschler, to handle portions of Berkshire's investment portfolio.

The shareholder meeting took place one day after Berkshire said first-quarter profit more than doubled, as its insurance business was spared the huge losses that natural disasters in Australia, Japan and New Zealand caused a year earlier.

Buffett even said that Berkshire is writing "a lot more" reinsurance in those countries, as well as in Thailand, than in past years. Berkshire has about 80 operating units, which sell such things as chemicals, clothing, furniture and ice cream.

"Overall, we feel good about the first quarter, we feel good about the year," Buffett said.

Berkshire did not repurchase shares in the first quarter, and Buffett said he would be comfortable repurchasing stock at a price of 1.1 times book value, and perhaps higher.

He again intimated that Berkshire would not soon institute a dividend, saying it would not help boost the share price.

TOSSING NEWSPAPERS, AND TAKING THEM OVER

Prior to the questioning, shareholders were regaled with the annual comedy-infused movie made by Buffett's daughter Susie.

One sketch featured Buffett singing and playing the ukulele with the cast of the TV show "Glee." Another featured Buffett's secretary Debbie Bosanek, whose effective tax rate is higher than her boss's, and which was an inspiration for the Obama administration's now-failed "Buffett rule" to raise taxes on the wealthy. Bosanek appeared with her feet up on her desk, discussing magazine covers. Buffett took phone calls for her.

Prior to that, Buffett scooted around a convention hall, visiting booths featuring Berkshire units and munching on his usual Dairy Queen orange-flavored ice cream bar. He also took part in a newspaper tossing contest at the booth for one of Berkshire's newest acquisitions, the Omaha World-Herald.

Berkshire also owns the Buffalo News, and is a longtime shareholder of Washington Post Co WPO.N. Buffett said Berkshire may buy more newspapers.

(Reporting By Ben Berkowitz in Omaha; Additional reporting and writing by Jonathan Stempel in New York; Editing by Bernard Orr)

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