Warren Buffett and Charlie Munger should draw another huge crowd at Berkshire Hathaway meeting

Berkshire’s annual meeting to draw roughly 40,000

OMAHA, Neb. — The throng of people attending Berkshire Hathaway’s annual meeting on Saturday will surely grow again this year in the wake of the company’s first stock split and its acquisition of the nation’s second-largest railroad.

The event’s main attraction of listening to billionaires Warren Buffett and Charlie Munger share their value-oriented views hasn’t changed. But shareholders also are likely to ask tough questions about Berkshire’s investment in Goldman Sachs, its position on proposed derivatives regulation and the economy, in addition to their perennial inquiries about the future of Berkshire after the two men depart.

“It’s going to be big. I’m sure it’ll be a record,” Buffett said about the crowd. Berkshire’s Chairman and CEO declined to discuss any possible discussion topics ahead of the May 1 meeting.

Buffett’s investment bank of choice, Goldman Sachs, is facing civil fraud charges and scrutiny in Congressional hearings. Berkshire holds a significant stake in Goldman, and Buffett has praised the company’s performance during the Great Recession, so he’s sure to face questions about it.

Berkshire bought $5 billion worth of Goldman Sachs preferred shares in the fall of 2008 in exchange for 10 percent interest and warrants to convert those shares into common stock at $115 per share anytime up to the fall of 2013. Goldman shares were selling for about $160 Thursday.

Shareholder Howard Alter said he’ll be interested to hear what Buffett thinks about Goldman, but he’s comfortable with the deal because of its favorable terms and because the Goldman shares can be sold anytime.

“It does look like a very smart investment,” said Alter, who is managing partner of New Jersey investment firm Roundview Capital.

Berkshire also has been in the headlines for its role in Congressional discussions about financial reform legislation and proposed rules for derivatives. It’s not clear exactly what role Berkshire has played, but Nebraska Sen. Ben Nelson opposed a version of the reform bill that would have applied new rules retroactively to existing derivative contracts because of concerns he was hearing from Nebraska businessmen.

If the new regulations were retroactive, Berkshire might have to post additional collateral on its derivative portfolio, which helped Buffett’s company generate a $787 million gain on investments in 2009. That’s up from a $7.5 billion investment loss that Berkshire recorded in 2008.

Most of Berkshire’s roughly 100 derivatives operate similar to insurance policies. Some of them cover whether certain stock market indexes will be lower 15 or 20 years in the future. Others cover credit losses at groups of 100 companies, and some cover credit risks of individual companies.

Over the past year, Berkshire completed its biggest acquisition ever with the $26.7 billion purchase of the Burlington Northern Santa Fe railroad, and the company finally joined the S&P 500 index after it split its Class B shares 50-for-1, making the stock more affordable and tradable. Both those events are expected to boost the size of the crowd at the Qwest Center Omaha arena to about 40,000 this year.

“There’s got to be some new shareholders who are very excited to see what this is about,” said Andy Kilpatrick, the stockbroker-author of “Of Permanent Value, the Story of Warren Buffett.” ”And with the B’s I think that makes more shareholders and you may get a little bit younger, more excited crowd.”

Kilpatrick predicted Buffett will find a way to showcase the BNSF acquisition at the meeting, but the exhibit hall also will be filled with displays selling products from several of Berkshire’s more than 80 subsidiaries.

Full details of what Burlington Northern means to Berkshire may have to wait until the week after the annual meeting when the company’s first-quarter earnings report is released on May 7.

Berkshire owns clothing, furniture, jewelry, utility and corporate jet firms, but its insurance businesses accounted for nearly one-third of the company’s profit in 2009. The collection of different businesses gives Buffett insight into the health of the overall economy.

Several of Berkshire’s subsidiaries, like Acme Brick and Shaw Carpet, are linked to the housing market so they have been slow to rebound even though the economy has begun to recover. Their businesses may accelerate now that the housing market is showing signs of life.

“Things have started to pick up lately in ways that are more meaningful to Berkshire subsidiaries,” Morningstar analyst Bill Bergman said.

Succession is always a concern for Berkshire shareholders because of 79-year-old Buffett’s and 86-year-old Munger’s ages, although both men appear to be in good health and haven’t announced plans to retire.

“Based on Buffett’s moves over the past few years, he still seems to be in his prime,” Alter said.

Buffett has said the plan to replace him includes splitting his job into three parts — chief executive officer, chief investment officer and chairman. But he hasn’t identified the candidates for the CEO and chief investment officer posts. Buffett’s son, Howard, is slated to succeed him as chairman.

Many shareholders seem OK with the succession plan partly because the company’s subsidiaries operate mostly independently. But some shareholders, like Alter, would prefer the plan be spelled out more clearly.

Alter, who is flying out from Princeton, N.J., for the meeting said he’d feel more comfortable if the person chosen to be the next CEO would get a chance to learn from Buffett for a couple years as a corporate operations officer.

“If Buffett’s retirement is tied to his death, then someone is going to be drinking out of a fire hose to try and get up to speed on the complexity of all the businesses,” Alter said.

On the Net:

Berkshire Hathaway Inc.: www.berkshirehathaway.com