A New Batter Steps Up to Yahoo’s Plate *** MARKET FOOLERY ***


Chris Hill: We’re going to talk all about
Berkshire Hathaway, because there was a whole lot of Berkshire in the news today. But, as
I indicated to you guys earlier this morning, I think I need to begin today’s episode by
taking a little bit of humble pie. Eat a little crow, say what you will. You may recall, we
recently talked about Gannett making a bid for Tribune Publishing, and Tribune Publishing
stock just jacked up 50% or so, 60%, something like that. They turned it down, and I was
floored by that. I thought, “Are you kidding me? With the deal that’s on the table, you’re
going to walk away from that?” And I have to eat some crow because shares
of Tribune Publishing are up another 21% today because Gannett came back to the table with
a higher bid! The original bid was to the tune of $815 million. This is $865 or so.
Well played, Tribune Publishing. They got a better deal. Are they going to take this
one now? Moser: I would imagine so. It’s always nice
to know you have something that someone else wants. That’s really the ultimate bottom line
here. It makes you think of the Marriott / Starwood thing that was going on not too terribly long ago.
Hill: Lot of back and forth there. Moser: Right, in an industry where it could
be argued that scale is one of the greatest competitive advantages. The media space is
significantly different. But, thanks to the internet, it is a very fast-changing space,
where I think it really behooves these big media properties to have a number of different
sorts of brands in their portfolio, different ways they can reach out to the local economies,
as it were. You see, what, Tribune has LA Times, among others.
Hill: And the Chicago Tribune. Moser: Obviously a very big market too. Very
big markets there. Given the way we get our news today, I said this, I think last time
we talked about this, we used to care, I think, much more about the brand that was actually
delivering the news. I don’t think that really is the case so much anymore. So, a lot of
these media companies are facing a really big choice here. Either consolidate or face
the possibility of going out of business. Muckerman: Yeah, I’m wondering what the poison
pill they put in last week. Oaktree Capital, their second-largest shareholder, wanted the
first deal to go through. So I’m assuming they’re going to put even more pressure on
them to allow this deal to go through. Hill: And Oaktree has about 15%, I believe?
It’s a pretty sizable stake. Muckerman: That’s right, just behind the CEO
or the founder. One individual is the largest shareholder, and then Oaktree Capital is the
second-largest. No insider would be the largest, I’m thinking. Hill: Gannett has a friend in the room. That
should help. We’ll see how this plays out, obviously. But I think if they decide to reject
this out of hand the way they did … again, give Tribune Publishing credit. They got a
higher offer, and they rejected that previous deal, I think, unanimously. But, I don’t know,
I think they would be wise to take a good, strong look at this. If I’m Gannett, and they get turned
down, I think I’m going to go shopping elsewhere. Muckerman: I think it was funny the way Gannett
phrased it, “We reevaluated it, we think there might be more value we can extract … ” I’m
thinking they just offered them the low offer to begin with.
Moser: Sure. Muckerman: And now they’re like, “Oh, we’ll
just have an excuse as to why we’re offering more money now.” I can’t imagine one extra
week of due diligence arrived at 22% more value they could extract. Moser: No doubt. It’s the same in any negotiation.
It’s negotiating one on one. You throw out an offer there. If they take it, great. If
they say no thanks, you can find some sort of middle ground. I suspect that’s probably
what’s happening here. Hill: It’s good to be a shareholder of Tribune
Publishing with your stock up about 85% in the last month.
Let’s move over to Berkshire Hathaway. Why don’t we start with the 13F filing, their
quarterly filing. We’ll get to the big stakes that Berkshire Hathaway owns, and the degree
to which they are increasing or decreasing some of those large stakes. But the headline
is that Berkshire Hathaway is now a shareholder of a little fruit company we like to call
Apple. All the reports indicate that this was not Buffett’s call, this was … was it
Ted Weschler? Moser: Either Combs or Weschler. I haven’t
read if they named one or the other, but I know … Hill: One of his trusted lieutenants made
this purchase. Moser: Yeah. That makes sense. I think, more
and more, as time goes on, we’re going to see that’s generally the case, where those
two are going to be making probably more of the equity investments. I think Buffett, and
maybe Munger, to a lesser degree, can use their reputation in the business world as
perhaps facilitating deals or helping to back deals, like they’ve done, or, it’s being rumored,
at least, that they’re going to do something like that with Yahoo. I mean, you have these two guys who are younger,
have maybe a little bit of a different perspective on the world. They invest very similarly to
how Warren Buffett invests. But I’m sure they probably feel like they have a better grasp
on technology than perhaps Buffett feels he might, which could explain a lot behind this
deal. But, they have virtually infinite financial resources, so they really need to figure out
ways to play big ideas, and Apple is by far one of the biggest. Muckerman: Kind of fits the mold. Didn’t they
invest in Kinder Morgan when Kinder Morgan sold off. So, you see Apple selling off quite
considerably. So possibly, just seeking that value that Buffett was known for for the long
tenure of his career so far. Hill: Do we run the risk of trying to read
too much into this? I’m just thinking about anyone who is looking at this move. Again,
this is not Buffett, this is one of his lieutenants. I think it would be understandable for an
investor looking at this move to ask the question, “Does this give us a glimpse into the future
of Berkshire Hathaway post-Warren Buffett.” And I’m wondering, that may be true, although,
do we risk reading too much into that? That once Buffett, for whatever reason, is no longer
running Berkshire Hathaway, do we see a lot more move in into technology investments?
Or, was this just the best use of capital at this time? Muckerman: I think with Apple, it’s a tech
stock, yes, but it’s the biggest stock in the world, just ahead of Google. It’s not
your average small cap, mid cap tech stock that’s going to be this volatile beast that
you don’t really understand. It’s a cash-generating machine. It has a dividend now. I don’t think
it’s your typical tech stock. It might be a first foray into it, really. But I don’t think it’s
signaling a significant sea change here. Moser: No. And I think, probably, as time
goes on, just the way the world changes, the way technology moves so fast, just that alone,
Berkshire Hathaway is more or less going to have to dip a toe into the tech space a little
bit more as time goes on. But yeah, to Taylor’s point there, Apple is not your typical tech
company. You’re buying, really, one of the most powerful brands on the entire planet.
It’s probably a bit easier for them to look at this and say, “They’re selling a product.
They’re selling phones and tablets and the software that goes with it.” It’s pretty easy
business to understand. That said, where Apple is today versus where
it was 10 years ago, this is a fundamentally different investment now. This is not like
investing in some growth-style tech company that could have multi-bagger status in the
next 5-10 years. Chances are that’s not going to happen. And when you go through the rest
of Berkshire’s portfolio, you see a lot of those old reliables in there, like Moody’s
and Phillips 66 and General Electric and IBM and Coca-Cola and Wells Fargo. Apple, I think,
is the same type of business. And people identify it very much the same way. I’m a little surprised that, given all of
the positive sentiment that Buffett has offered towards Jeff Bezos and what he’s done in his
life with Amazon, I really honestly thought maybe we would see Berkshire consider initiating
a position in Amazon, because they have a huge position in Walmart, and I think a lot
of us believe that Walmart is sort of the old guard there, and Amazon is really the
new guard, when it comes to retail. And again, retail is not all that difficult to understand.
Amazon I would also put in there as a tech company, because they are. Hill: They’re not paying a dividend, though.
Muckerman: No, not quite. Moser: That’s true, but I also, if you’re
asking me which one out-performs in the next five years, I’m picking Amazon without even
thinking twice about it. Carl Icahn just recently divested from Apple, saying it was no longer
the no-brainer that he once said it was. That ultimately is the market. People disagree,
and you pick a side there. But it seems like they at least feel like there’s going to be
some kind of an attractive return here in the next few years. Muckerman: Carl Icahn didn’t really get what
he wanted in terms of activism, the higher shareholder returns in terms of a dividend
or share buyback. So maybe he’s admitting defeat moreso than Apple might not be a great
stock for the next few years. Moser: And he was pegging Apple shares at
some point in the past year as maybe a double from their current levels. Granted, that wasn’t
all organic growth, that would share buybacks along with whatever product came in the pipeline
there. I think a lot of us felt that was maybe a bit optimistic as well, especially when
you look at how Apple has performed. Go back to 2012, when they initiated the dividend.
It’s not like it’s out-performed the market. It really hasn’t. So, I would love to see
them juice the dividend to little bit. Buybacks are fine. And if we happen to see a tax holiday
at some point where they can bring some of that cash back home, that would probably be
a catalyst as well. Hill: You mentioned Berkshire Hathaway’s stake
in Walmart. That is one of the smaller headlines today — when you look at where the investments
are, and the big investments that Berkshire Hathaway makes, we have seen it disclosed
that they have a smaller stake in Walmart, MasterCard, Procter & Gamble. They’ve increased
their stake in IBM, Phillips 66 and Visa. I’m assuming that the Visa / MasterCard is
not so much that they greatly prefer Visa to MasterCard. That may have just been simply
a slight over weighing issue. It’s not like AT&T where they outright eliminated their
stake. Phillips 66. Any insight into the increase
in their stake there? Muckerman: Not really. I mean, it’s one of
the bigger downstream companies in the U.S., in the world. It could certainly be a play
on the chemical side of the business, which, chemicals, they’re benefiting from low oil
prices, they’re benefiting from low natural gas prices. I think the growth in what we
use chemicals for, certainly has a bright future. I think it’s more along the lines
of not gasoline but the other by-products you’re getting out of Phillips 66. And they’re
putting a lot of money into that business. I think that might be what they’re looking
at. And, obviously, energy has been suffering for a while. So maybe there’s a value side
to that play, as well. Hill: You already touched on this, Jason,
but let’s spend a couple minutes before we wrap up on the Yahoo news. I think we might
have said, on a previous episode, when we were talking about Yahoo and the bids that
were being made. Clearly Verizon making a bid for Yahoo, other players coming in as
well, Yellow Pages. Reminding us that Yellow Pages still exists. But, I think we said at
the time, “Look, this is still an opportunity for a mystery horse to come in,” and that
was the news that broke over the weekend. Dan Gilbert, the founder of Quicken Loans,
is heading up a contortion to make a bid for Yahoo’s core assets. And Warren Buffett has
come out and said he’s willing to be the financial backer. He was also very clear about saying,
“I’m not interested in the stock,” even though that presumably would exist in the terms of
the deal, that they would be able to convert some of the finances into stock if they so
choose. But at least on the surface of it, were you surprised by this? Moser: I was very surprised. I thought maybe
he was mixed up and thought they were talking about a deal to put a bid in for Yoo-hoo and
not Yahoo. Hill: Think he’s a fan of the chocolate drink? Moser: So, for Buffett, the luxury he has
is he can pretty much dictate the terms. Going into something like this with Yahoo, he’s
going to figure out any way he can to make this beneficial for him. That’s the point.
I would be surprised if there was a way for him to be rewarded on this through Yahoo stock.
I think we’re probably all on the same page that Yahoo’s stock has maybe had its biggest
run. I think it’s best days are probably behind it, because when you X-out that Alibaba interest,
and then you just look at the general space today, Yahoo is just not the same as it once
was. Eyeballs are just going to other place. So any way he can figure out an opportunity
to help facilitate a deal and dictate financial terms that work out for him … he’s really
good at that. It could be debt that convert into preferred shares, whatever it is, I suspect
we will see that kind of angle there, as opposed to him just laying out interest there, that
he would love to own Yahoo shares. I don’t think he really would. But I think there’s
a way he sees that they could potentially profit from this being part of the deal. Muckerman: Who’s to say that Yahoo remains
public after it gets bought? They’re only selling the core business, not the entire
business. Maybe these buyers take it private. Verizon is one of the lead dogs in possibly
purchasing it, to buying AOL assets and challenging Facebook and Google on the digital advertising
side. My bet would be that Yahoo core assets disappear from the public markets, in most
cases. Hill: It’s interesting, because as we talked
about before with Verizon, intellectually Verizon bidding for Yahoo’s core assets makes
sense for me. They need content. Yahoo does a very good job with sports and finance. And,
as I always like to point out, we’re one of the companies that works with Yahoo Finance.
Dan Gilbert is the founder of Quicken Loans, so he clearly has the finance background.
He’s also the owner of the Cleveland Cavaliers. And I’m wondering if Gilbert has enough, or
feels like he has enough, insight, both into Yahoo Finance and the world of sports content,
that that’s what he’s after here, that he feels like he has enough intel about the way
those two businesses operate. But I think you’re right, Taylor. If Gilbert
is the one who ends up winning the bid here, I would be surprised if those assets remain
public, whereas with Verizon, if they come under the Verizon umbrella, they technically
still are. Moser: Yeah, more than likely. Hill: Has to be pretty good to be Dan Gilbert
these days. You get the Cleveland Cavaliers, primed to make the NBA finals one more time. Moser: You have Buffett wanting to shell out
some cash and make a deal. Hill: Good to be Dan Gilbert.
Muckerman: Trying to turn Detroit around. Moser: Wouldn’t you rather work with Buffett
than try to weasel some cash out of the bank? I’m sure he’s way more fun to be with. Hill: I would think so. Don’t rule out him
bidding for Yoo-hoo, however, because we know he loves dairy. The man has a sweet tooth. Moser: It’d be right up his alley. And I’m
not knocking Yoo-hoo, I think that stuff is really good! Hill: But Buffett is a walking advertisement
for, there’s no substitute for having good genes. He is in his mid 80s and does not appear
to take very good care of himself. Muckerman: Five Cokes a day. Hill: (laughs) He drinks a lot of Coca-Cola
products, he is a cheerleader for Dairy Queen. Moser: My kind of guy.
Hill: Loves the Dilly Bars. Muckerman: He’s an outlier in more than one way. Hill: (laughs) Yes. Outlier in investing,
outlier in personal health. Thanks for being here, guys.
Muckerman: Thanks. Moser: I appreciate it. Hill: As always, people on the program may
have interests in the stocks they talk about, and The Motley Fool may have formal recommendations
for or against, so don’t buy or sell stocks based solely on what you hear. That’s going
to do it for this edition of Market Foolery. The show is mixed by Dan Boyd. I’m Chris Hill.
Thanks for listening, we’ll see you tomorrow.

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