Berkshire Hathaway Inc., Warren Buffett’s company, now owns more than 10% of Delta Air Lines. Buffett calls that an unintended mistake.
Last month, independent of one another, Delta bought back more of its own stock. Meanwhile, Berkshire Hathway increased its holdings in Delta. When the numbers were crunched, Berkshire Hathaway owned more than 10% of Delta. Berkshire Hathaway purchased 5,368,956 additional shares of Delta stock, pushing up its ownership to nearly 71 million shares.
Speaking to CNBC, Buffet responded to this revelation by buying even more.
What I didn’t realize was that that purchase had taken us over 10 percent. I was already in territory I didn’t plan to get, so I just decided to buy a whole lot more stock.
That doesn’t sound like a mistake to me…
Buffet’s willingnerss to invest in airlines marks a 180º turn from his stance for many years after nearly being burned by US Airways (he still made a profit on that deal…). Rumors continue to swirl that Buffett is looking into a full airline acqusition.
The airline industry is a very, very competitive business. I don’t think it’s a suicidal business anymore, but it was for quite a while.
You can watch the full interview below. Other topics are touched on including the new Apple credit card, Lyft, and Buffet’s thoughts on Boeing and the 737 MAX crash.
image: Flickr / FORTUNE
A “mistake”?? Whatever. Buffett doesn’t buy more shares by “mistake”. His grandfatherly schtick is a ruse. Dude would drill in his Mom’s head if he found oil there. He’s a killer. Period.
It was a mistake in the sense that he probably wanted to stay just under 10% to avoid the additional regulatory headaches you have to deal with after crossing that threshold.
You have to love the Sage from Omaha. Berkshire has been buying back their own shares as well, so he should hardly be surprised.
So what does a buyback mean for Delta? First of all, it means that they have surplus cash. Secondly, it means that either (1) they don’t have anything better to do with that cash or, (2) whatever investment options they have will not return something more than the 2.8% dividend they pay on their shares, meaning in their internal calculus it is better to buy back shares. I am by no means an expert on these things, however what always boggles my mind is why Delta would not sooner pay a dividend to its shareholders rather than buy its own shares.
Cost of equity is more than cost of debt or they would have paid down the debt instead.