Munger Says He Told Buffett of BYD Stake

[Guest kumar]

 

http://www.bloomberg.com/news/2011-04-05/munger-says-he-told-buffett-of-byd-stake-stayed-out-of-berkshire-s-talks.html

 

....Munger said his family was invested in BYD Co. “for years” before his company took a stake in the Chinese automaker.....his family invested with money manager Li Lu in BYD through a partnership that has a stake of about 3 percent....The Munger investment in BYD is different from Sokol’s in Lubrizol because of the longer amount of time that elapsed before Berkshire announced its intention to acquire shares, said James Cox, a professor of corporate and securities law at Duke University Law School....Munger’s account of the BYD investments doesn’t raise “any taint or question mark” for Berkshire, said John Coffee, a securities law professor at Columbia University....

[Kiltacular]

Aside from the fact that Munger's ownership was through a partnership in which he invested, the big difference is that Berkshire didn't make an offer to buy all of BYD.

 

This is not even remotely similar.  Now, if it comes to light that Munger, for example, bought a big stake in Burlington Northern just before Berkshire made their offer to buy the entire railroad, then that would be comparable.

 

On a related note, no one has mentioned whether Sokol's actions before that buyout have been looked into.  If Sokol knew of the impending offer to buyout BNSF, it should be checked out whether he bought any shares.  Or, whether any Berkshire insider did. 

 

Aside from BNSF, I can't think of many other recent buyouts of public companies Berkshire has done...was Clayton Homes the last one before BNSF?

 

 

[Guest ValueCarl]

I don't know if Munger threw Sokol under the bus in his typical fashion by disassociating himself from the amount of "time" in between trades versus Lubrizol, but he or the author of this story confused me. How does one go from a 3 percent stake to owning greater than fifty percent of a fund inclusive of price changes tied to underlying assets, unless they "added" new capital to the fund somewhere along the line? I seem to be missing something. Did Berkshire take a stake in the Li Lu fund, rather than a direct position in BYD which increased the Munger Family's stake in Li Lu's fund "indirectly"? 

 

Munger, 87, said his family invested with money manager Li Lu in BYD through a partnership that has a stake of about 3 percent and that he urged Sokol, then the leader of Berkshire’s energy business, to scout the business.

 

“I had Dave look at it, because I knew I couldn’t talk Warren into buying into the damn thing by myself,” Munger said. “It’s a new technology-type investment. But David went over there, and he made the deal for Berkshire.” Buffett is Berkshire’s chairman and chief executive officer.

 

Berkshire’s Investment

 

Berkshire invested about $230 million in BYD in 2008 and holds a stake of almost 10 percent in the company. The investment was valued at $1.18 billion at the end of 2010, Buffett said in the company’s annual report. BYD, based in Shenzhen, has said it aims to begin selling electric and hybrid cars in Europe by the end of next year.

 

Munger said his family holds a “little more” than half of the fund with the BYD investment, and that he didn’t participate in Berkshire’s discussions on its deal. 

[CONeal]

I took it as... of the fund that was set up, Munger's family money makes up about 50% of the total assets in the fund.  That fund owns 3% of the BYD company.

[seshnath]

Aside from the fact that Munger's ownership was through a partnership in which he invested, the big difference is that Berkshire didn't make an offer to buy all of BYD.

 

This is not even remotely similar.  Now, if it comes to light that Munger, for example, bought a big stake in Burlington Northern just before Berkshire made their offer to buy the entire railroad, then that would be comparable.

 

On a related note, no one has mentioned whether Sokol's actions before that buyout have been looked into.  If Sokol knew of the impending offer to buyout BNSF, it should be checked out whether he bought any shares.  Or, whether any Berkshire insider did. 

 

Aside from BNSF, I can't think of many other recent buyouts of public companies Berkshire has done...was Clayton Homes the last one before BNSF?

 

 

 

Kit - I was making a similar point in the post on Sokol earlier. 

 

Also, Munger didn't have Berkshire pay for the due diligence/short listing before he decided to buy.  That is what Sokol did - Berkshire/subsidiaries paid Citi to short-list the candidates including LUZ, then Sokol decides to buy.  In Munger's case, it was clearly the other way round.  Sokol used the result of a corporate spending for personal/family benefit.

[merkhet]

I would bet my last dollar that Munger is above reproach.

 

ValueCarl, I think CONeal is correct.  Munger owns about 50% of Li Lu's fund which they established years ago.  Li Lu then was the person who initially found and invested in BYD.  LL Investment Partners (Li Lu's fund) owns 2.5% of BYD -- maybe it's 3% now, I don't know.

 

Berkshire picked up its ownership in BYD through the MidAmerican subsidiary.  Berkshire did not invest in Li Lu's fund.

[Guest ValueCarl]

That makes sense. Initially, he was talking about the BYD stake inside the fund.  Thanks guys!  8)

 

<Munger owns about 50% of Li Lu's fund which they established years ago.  Li Lu then was the person who initially found and invested in BYD.  LL Investment Partners (Li Lu's fund) owns 2.5% of BYD -- maybe it's 3% now, I don't know.

 

Berkshire picked up its ownership in BYD through the MidAmerican subsidiary.  Berkshire did not invest in Li Lu's fund.>

[Guest ValueCarl]

If there is one thing about the MUNGER FAMILY STAKE, "I think we are turning Chinese, I think we are turning Chinese, I really think so," in Build Your Dream(BYD), it's the fact that, he and LU NEEDED Buffett's endorsement to move the stock higher!

 

How does one rationalize this in "SECURITIES ANALYSIS!"

 

Besides the fact, that the DYNAMIC DUO gang banged the "CURRENCY EXCHANGE"-alot of their EARLIEST gain came from such a phenomenon-BYD didn't mean DITKUS in the marketplace until the media started pointing towards Buffett's involvement.

 

I remember distinctly pointing out the lunacy of their valuation exceeding competing US car industry's market caps in the wake of the implosion, while suggesting Buffett should be careful "what he wished for" in turning CHINESE along with MUNGER!

 

Of course, it wasn't long after that, the RED GOVT. began SEIZING BYD real estate!!!!!!!!!!!!!!!!!!!  :o         

[merkhet]

ValueCarl,

 

I think the high valuation in 1H2010 was goosed a bit by Warren's purchase, no doubt.  However, I think a lot of it also had to do with going from 100,000 units of auto sales to 450,000 units of auto sales in a year.  Now, the market did what it normally does -- and overreacted on the upside.  However, I think it's a step beyond to say that "[Munger] and Lu NEEDED Buffett's endorsement..."

 

Also, the Chinese government has returned the BYD real estate seized in last October for a nominal $9 million fine.  I believe the press release came out this week.  Price of doing business in China.

[Guest ValueCarl]

Did you do the currency exchange rate math which they were able to capitalize on-others were not-at the same time lemming US and/or international investors were making what I'll call a "put" bet on the US car industry, and associated economy which Mr. Buffett believed so much in?

 

I guess what you're saying then, was Buffett got in right in FRONT of an exponential, positive change in SALES!!!!!!!!!!! How convenient for David to tell him that after Munger led him there on behalf of Buffett.

 

Without a doubt, the stock market is "an insiders game" and I'm not criticizing what they did here, entirely, as it was fair play for the game it is barring the necessary constraints, like what Sokol seems to have violated in trading Lubrizol.