Parsad Posted March 30, 2011 Share Posted March 30, 2011 From the tone of the letter, it sounded like he's trying to build a legacy for his family. What would be better than building a family bank, and having Buffett's left-hand man be involved. Cheers! Link to comment Share on other sites More sharing options...
bluedevil Posted March 30, 2011 Share Posted March 30, 2011 Buffett makes us read between the lines, but he doesn't leave much for doubt, it seems to me. What he said: Neither Dave nor I feel his Lubrizol purchases were in any way unlawful. What he did not say: I do not feel that Dave's Lubrizol purchase was in any way improper. What he said: Shortly before I left for Asia on March 19, I learned that Dave first purchased 2,300 shares of Lubrizol on December 14, which he then sold on December 21. What he did not say: Who gave him this information. (The SEC?) What he said: Finally, Dave brought the idea for purchasing Lubrizol to me on either January 14 or 15. "In a passing remark" he "mentioned" that he owned stock in the company. What he did not say: Dave told me that he had some stock but I had no freakin idea he had just bought 90,600 shares of Lubrizol and would make a truckload of money if I made an offer. What he said: This time, however, I did not attempt to talk him out of his decision and accepted his resignation. What he did not say: While keeping Dave would make a ton of money for the company, the culture of integrity at Berkshire is more important. What he said: If questioned about this matter in the future, I will simply refer the questioner back to this release. What he did not say: I have nothing nice to say about how Dave acted here. So I am not going to say anything at all. Link to comment Share on other sites More sharing options...
petey2720 Posted March 30, 2011 Share Posted March 30, 2011 I really think he got canned. From Buffett's memo to the Berkshire Managers dated July 26, 2010 that was posted in the Annual Report: "If you see anything whose propriety or legality causes you to hesitate, be sure to give me a call. However, it’s very likely that if a given course of action evokes such hesitation, it’s too close to the line and should be abandoned. There’s plenty of money to be made in the center of the court. If it’s questionable whether some action is close to the line, just assume it is outside and forget it." I think this was way over the line. I think he should have only bought stock in LZ only after Buffett decided to pass on the acquisition. Link to comment Share on other sites More sharing options...
Grenville Posted March 30, 2011 Share Posted March 30, 2011 It's too bad Warren didn't find out about the large purchase until March 16 after he had made the agreement to purchase Lubrizol. It's a very weird set of circumstances, since I can't imagine ~3mil is a worth the risk to one's reputation given his wealth through MidAmerican. Link to comment Share on other sites More sharing options...
Parsad Posted March 30, 2011 Share Posted March 30, 2011 Yeah Bluedevil, I think you may be correct. After re-reading the press release, Buffett also says that he received the resignation letter from Sokol's assistant! I don't think any of us would do that, let alone the guy many thought would take over the company. Why would Sokol not deliver the letter himself? Perhaps, this was a Joe Brandon type nudge into resigning. Don't know, and I guess we'll find out in tomorrow's interview and at the AGM this year. No wonder the loud talk about Ajit as CEO in the last week. Cheers! Link to comment Share on other sites More sharing options...
Grenville Posted March 30, 2011 Share Posted March 30, 2011 Yeah Bluedevil, I think you may be correct. After re-reading the press release, Buffett also says that he received the resignation letter from Sokol's assistant! I don't think any of us would do that, let alone the guy many thought would take over the company. Why would Sokol not deliver the letter himself? Perhaps, this was a Joe Brandon type nudge into resigning. Don't know, and I guess we'll find out in tomorrow's interview and at the AGM this year. No wonder the loud talk about Ajit as CEO in the last week. Cheers! Great analysis guys! It's nice to have a forum to understand this because it's a big deal for those of us learning and investing in Berkshire! On a side note, I did think the very blatant plug for Ajit as CEO seemed a little out place and not usual. Link to comment Share on other sites More sharing options...
Carvel46 Posted March 30, 2011 Share Posted March 30, 2011 Obviously, frontrunning doesn't pass the NYT front page test--for good reputation. Consciously and subconsciously, it seems, he wanted out. Link to comment Share on other sites More sharing options...
S2S Posted March 30, 2011 Share Posted March 30, 2011 I agree with bluedevil's interpretation of the letter. I'm sure there are other reasons on Sokol's end, but news of the stock purchase spells nothing but a PR nightmare for Berkshire. Too bad the company lost its Mr. Fix-it over a $3M transaction. Finally there's a day where I don't want to be in Buffett's position. ;D Link to comment Share on other sites More sharing options...
ericd1 Posted March 30, 2011 Share Posted March 30, 2011 Frankly I'm very surprised by Sokol's purchases. Most executives know and understand the possible impropriety that could result from such actions, even if he isn;t part of BRK's 'investment committee of one'. That said I doubt that he needed the $3.4M. Hopefully he'll donate it to charity and clear the air. Link to comment Share on other sites More sharing options...
Guest ValueCarl Posted March 30, 2011 Share Posted March 30, 2011 Buffett gives Sokol a free pass, while Kilpatrick is shocked! How this passes the smell test on illegal "insider trading" laws is better for lawyers to explore; however, this was the key man sent out to uncover the best chemical company for Berkshire to purchase, so buying any of them in his personal accounts in advance of final recommendations later, is absolutely intent to profit unfairly in my mind. If this were Stevie Cohen, I'd be calling him a crook in this example, so Sokol has now become just another Stevie Cohen in my mind. I hope the regulators seek Sokol out and make him disgorge his profits minimally! imo http://finance.yahoo.com/news/Buffett-surprised-as-top-apf-2077597483.html?x=0&sec=topStories&pos=4&asset=&ccode= "I'm just totally shocked," said Andy Kilpatrick, the stockbroker-author of "Of Permanent Value, the Story of Warren Buffett." "It looked until a few minutes ago as if he (Sokol) was the guy." Buffett said he learned March 19 that Sokol bought and sold a couple thousand shares of Lubrizol in December and then purchased nearly 100,000 Lubrizol shares in early January about a week before recommending that Berkshire make a bid. Buffett said the decision, announced March 14, to offer $135 in cash for each share of Lubrizol was entirely his, but that the deal wouldn't have happened without Sokol's early efforts. Buffett said he doesn't believe those stock purchases were illegal because Sokol made them before he'd even suggested the Lubrizol deal, and said Sokol did mention in passing that he owned stock in the company when first bringing the deal up for discussion. Buffett also said that he didn't ask Sokol to resign and noted that Sokol told him that the stock purchases weren't a factor in his decision to leave the company. "Dave's contributions have been extraordinary," Buffett said. Buffett declined to comment beyond his statement. Sokol did not immediately respond to a message left Wednesday. Glenn Tongue, a managing partner at the T2Partners investment firm, said it looks like Buffett believed he needed to disclose Sokol's Lubrizol purchases to investors. "It appears as though it's something that would have made Mr. Buffett uncomfortable," Tongue said. Link to comment Share on other sites More sharing options...
Parsad Posted March 30, 2011 Share Posted March 30, 2011 What I actually found funny was Whitney Tilson's interview on CNBC. He had a good interview, but in the middle of it, he said that if Berkshire's stock was down 1% tomorrow, he'd be a buyer...then the interviewer said that the stock was down 2% in after hours trading. ;D Not sure if he mis-heard what the interviewer said. I'm guessing he just meant that if there was any over-reaction, he'd be a buyer. Funny soundbite though! Cheers! Link to comment Share on other sites More sharing options...
Liberty Posted March 30, 2011 Share Posted March 30, 2011 My first reaction was to be shocked, but then, after a little cooling off, I realize that maybe this is for the best; better that a lapse in judgement be revealed now than after Sokol is CEO of Berkshire. It might not technically be illegal, but Buffett's standards are higher than this and Sokol knew it. But any way you slice it, it really sucks. Sokol is extremely talented. Link to comment Share on other sites More sharing options...
CONeal Posted March 30, 2011 Share Posted March 30, 2011 " In our first talk about Lubrizol, Dave mentioned that he owned stock in the company. It was a passing remark and I did not ask him about the date of his purchase or the extent of his holdings." Without knowing the full details of what has been going on behind the scenes it seems to me Sokol did what he should have done. He disclosed his position at the very beginning. It's not like he bought the shares once he knew BRK was interested. Link to comment Share on other sites More sharing options...
damianolive Posted March 30, 2011 Share Posted March 30, 2011 If an employee from the bank advising Berkshire on the purchase had acquired Lubrizol shares when he learned of Sokol's intentions, that employee would most certainly have been charged with insider trading. Insider trading is never a sure thing, it's always about probabilities, so it doesn't matter at all that Sokol didn't know with certainty what would happen. Sokol clearly held material non public information about this stock. The shareholders of Lubrizol who sold their shares on January 5, 6 and 7 have a very good case against Sokol. My guess is that they will take legal action and Berkshire will settle out of court - with an apology letter attached to the check. What seems surprising here is that Buffett did not fire him. What kind of message does that send to the CEO of a public company considering a sale to Berkshire? The CEO could rightly think that Buffett does not consider it unlawful or cause for dismissal if an employee of Berkshire is front running the shareholders of his (the CEO's) company -i.e. the people he (the CEO) works for. Buffett is obviously a master at all things related to people and business, but I wonder if he has fully captured the reputational repercussions of not having fired Sokol. If the #2 at a major private equity fund did this, it would taint the franchise of that fund in perhaps irreparable ways. By not being a lot tougher on Sokol, Buffett might be putting at risk his most valuable asset - reputation. Link to comment Share on other sites More sharing options...
Liberty Posted March 31, 2011 Share Posted March 31, 2011 BRK is down about 3% in after-hours trading. Link to comment Share on other sites More sharing options...
Guest ValueCarl Posted March 31, 2011 Share Posted March 31, 2011 It's true that there is much to be learned regarding the behind the scenes matters involved. The FAST TRADES in December, only to come back to it in SIZE in early January right before recommending it to WEB, remains a RED HERRING. Sokol, more than most INSIDERS, possibly with Munger being the only exception, knows when, possibly even how to RING the BELL which makes WEB salivate and ultimately causes him to take a bite out of the APPLE! imo Link to comment Share on other sites More sharing options...
Carvel46 Posted March 31, 2011 Share Posted March 31, 2011 Wow! That just came way out of left field. This raises an interesting question in my mind: Would someone with the entrepreneurial drive and passion needed to run a successful company be interested in essentially working as an employee for Berkshire? (And the corollary, would Buffett be willing to reward his top Manager with enough equity to make it worthwhile for them? Something he has previously been loath to do.) It is interesting that Sokol mentioned he wanted to explore more entrepreneurial endeavors where he could build up substantial equity in the business. I wonder if something similar factored into Li Lu's decision not to take the Chief Investment position. Fascinating, to say the least. m. Excellent point mloub! I wonder how Sokol felt about his total pay in relation to his responsibility. Link to comment Share on other sites More sharing options...
Rabbitisrich Posted March 31, 2011 Share Posted March 31, 2011 It's interesting that Buffett didn't view Lubrizol as a great purchase following a review of the financials. His explanatory letter references Sokol's report of a "January 25 dinner conversation with James Hambrick" as the conviction builder. Link to comment Share on other sites More sharing options...
brker_guy Posted March 31, 2011 Share Posted March 31, 2011 This is like watching Star Wars - Revenge of the Sith and hearing Obi-Wan Kenobi said, "But you are the Chosen One, Anakin!" Very sad to see it happen to a talented guy like Sokol... I wish him well at Middleburg and philanthropy. Link to comment Share on other sites More sharing options...
Liberty Posted March 31, 2011 Share Posted March 31, 2011 It's interesting that Buffett didn't view Lubrizol as a great purchase following a review of the financials. His explanatory letter references Sokol's report of a "January 25 dinner conversation with James Hambrick" as the conviction builder. I also wonder what this means. Is it that Hambrick is so great that he changed Buffett's mind, or that in that dinner conversation some plans about the future of the company were revealed that made things different for WEB..? Link to comment Share on other sites More sharing options...
given2invest Posted March 31, 2011 Share Posted March 31, 2011 From WSJ: "I have been a CEO for 27 years in two companies, and my interest is in growing companies," he said, adding his goal is to build an entity of his own that's similar to Berkshire. http://online.wsj.com/article/SB10001424052748703712504576233230529788592.html?mod=WSJ_hp_LEADNewsCollection Link to comment Share on other sites More sharing options...
collegeinvestor Posted March 31, 2011 Share Posted March 31, 2011 I wonder if David still has the shares or if he dumped them already? Link to comment Share on other sites More sharing options...
given2invest Posted March 31, 2011 Share Posted March 31, 2011 I wonder if David still has the shares or if he dumped them already? Why does that matter? Being acquired for cash. He probably still has them. The WSJ says it would show up in the proxy in a few weeks as him holding them, hence why they disclosed today. Link to comment Share on other sites More sharing options...
collegeinvestor Posted March 31, 2011 Share Posted March 31, 2011 I just don't get how this is not insider trading. I also don't get why Warren eventually decided to buy the company and what changed his outlook on Lubrizoil. Is there a chance that Berkshire exits the deal for 200mil? Link to comment Share on other sites More sharing options...
given2invest Posted March 31, 2011 Share Posted March 31, 2011 Nah, one thing has nothing to do with the other. He wasn't conned into buying it to make David $3 Million dollars. Link to comment Share on other sites More sharing options...
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