Berkshire Hathaway offers to buy 19.9 pct of stock in Wesco Financial it doesn’t already own

Buffett’s company offers to buy rest of Wesco unit

OMAHA, Neb. — Warren Buffett’s company said Thursday it will offer to buy the roughly 1.4 million shares it doesn’t already own of its subsidiary Wesco Financial Corp., and the news sent Wesco’s stock soaring 12 percent.

Berkshire Hathaway Inc. says it will offer a combination of cash and Class B Berkshire stock to acquire the remaining 19.9 percent of the Pasadena, Calif., company led by Buffett’s partner and Berkshire’s vice chairman, Charlie Munger.

The deal would be worth roughly $500 million based on Wesco’s value at the end of the second quarter.

Wesco is a conglomerate that owns insurance businesses and an eclectic mix of operating companies, much like Berkshire Hathaway, but Wesco is smaller and less diverse.

Berkshire said in a filing with the Securities and Exchange Commission it will discuss the deal with Wesco’s independent directors. Terms were not disclosed, but Berkshire said it would be willing to pay an amount equal to the book value of Wesco’s stock.

Wesco officials estimated that the company was worth $352.66 per share at the end of June, down from $358 per share at the end of last year but up from roughly $334 per share at the end of 2008.

Wesco stock gained $38.25 to close at $363 Thursday after the news. Berkshire’s B shares declined 43 cents to $76.37.

Berkshire officials in Omaha, where the 79-year-old Buffett is based, did not immediately respond to a message. And Munger did not immediately respond to a message left at his Pasadena office.

Wesco has been controlled by Berkshire, which owns 5.7 million Wesco shares, for more than 30 years. Berkshire board member and Microsoft co-founder Bill Gates owns 89,972 shares of Wesco stock, or about 1.3 percent of the company.

Munger has often described the unusual structure of Wesco as a historical accident. Munger and Buffett took control of Wesco in 1973 through one of their other investments, the Blue Chip Stamp Co., which later became part of Berkshire.

Andy Kilpatrick, the stockbroker-author of “Of Permanent Value, the Story of Warren Buffett,” said it seems like a good time for Berkshire to do this because Wesco has been trading at a relatively affordable level and Berkshire has the cash needed to complete the deal. Kilpatrick says Munger has often said Wesco would become part of Berkshire one day.

“It ties up a loose end that’s always been there at Berkshire,” Kilpatrick said.

The 86-year-old Munger serves as chairman, CEO and president of Wesco, but it has always been run as part of Berkshire. Munger consults with Buffett on Wesco investment decisions and major capital allocations, much like Buffett, as Berkshire’s chairman and CEO, consults with Munger about Berkshire decisions.

Wesco has a reinsurance division and it owns Kansas Bankers Surety Co., which offers specialized insurance to banks; CORT Business Services, which rents furniture to companies; and Precision Steel, which buys scrap metal, cuts it to order and resells it. Wesco itself had 13 employees at the end of 2009.

Wesco, as a publicly traded company, has to hold its own annual meetings, and in recent years that meeting has attracted roughly 1,000 people who want a chance to hear Munger’s thoughts because he runs the Wesco meeting in Pasadena, without Buffett.

A few days earlier each spring, Munger answers questions alongside Buffett for hours at the Berkshire shareholders meeting in Omaha.

If the Wesco deal goes through, it may become harder for investors to find a chance to hear Munger alone.

Wesco is one of Berkshire’s more than 80 subsidiaries. Berkshire owns clothing, insurance, furniture, utility, jewelry and corporate jet companies. Berkshire also has big investments in companies including Coca-Cola Co. and Wells Fargo & Co.

Online:

Berkshire Hathaway Inc.: www.berkshirehathaway.com

Wesco Financial: www.wescofinancial.com