Business Proposal: Berkshire Hathaway, Inc. Legal Insights

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[. . .] The prior year, BH acquired a nearly 20% stake in railroad operator Burlington Northern Santa Fe (BNSF) for some $8 billion, followed by the 2010 purchase of the remainder of BNSF for more than $26 billion in cash and stock. In the largest BH buyout ever, the total cost to the company was $44 billion with assumption $10 billion in debt. Turning BNSF into a wholly owned subsidiary is consistent with BH's investment portfolio strategy which targets large entities with consistent earnings, streamlined business models, and parallel leadership culture. As with BNSF, most BH purchases are conducted with cash, and retention of management is typical to BH oversight as a parent corporation.

Despite some loss along the way, when competitors were down in 2008, BH as the company still outperformed the S&P 500. Stepping in where relatively few were willing to go at the outset of the global economic crisis, BH offered up $10 billion to bail out Goldman Sachs in the wake of bad mortgage-related investments. Within a year the company would go onto invest $3 billion in global conglomerate General Electric; and in reinsurance firms like Swiss Re at $2.6 billion in 2009, and $1 billion outlay for a 3% stake in Munich Re in 2010 later increased to 10% total investment (Hoovers, 2010). Buffett turned 80 in 2010. Executive leadership and the Board of Directors at BH is comprised of a group of carefully selected, high profile professionals whom dedicate their expertise and time to management of the corporation (Appendix A and B). Letters to Warren E. Buffett regarding pledges to make gifts of Berkshire stock by some of those members and their network of investment partners are mentioned on the company' website, Table 6.

Table 6

Bill and Melinda Gates Foundation

Susan Thompson Buffett Foundation

Howard G. Buffett Foundation

The Sherwood Foundation (formerly Susan A. Buffett Foundation)

NoVo Foundation (Peter A. Buffett)

Table 6. Contributors to BH stock, 2010 (Berkshire Hathaway, 2010).

Stock performance as of 26 November 2010 reported losses to BH's financial picture seen in Table 6 and Graph 3.

Table 6

Detailed Quote (NYSE: BRK.A)

Latest

(11/26/10-13:01:07 EST)

Change ($)

Change (%)

High

Low

$119,450.00

-1050.0000

$119,750.00

$119,118.25

Prev Close

$120,500.00

Open

$119,300.00

Bid

Bid Size

Ask

Ask Size

High

$119,750.00

52 Wk High

$128,730.00

Low

$119,118.25

52 Wk Low

$97,205.00

Restricted

No

Volume

Market Cap ($ mil.)

114,194

EPS

$7,508.00

P/E Ratio

15.91

Table 6. BH stock performance 26 Nov 2010 (Hoovers, 2010).

Graph 3. BH stock performance 26 Nov 2010 (Hoovers, 2010).

A summary financial statement and annual balance sheet for BH reported earnings in 2009 are shown in Tables 7 and 8. The Company's SEC Filings are provided in Table 9 .

Table 7

Company Type

Public - NYSE: BRK.A

Headquarters

Fiscal Year-End

December

Financial Filings

SEC

2009 Sales (mil.)

$112,493.0

1-Year Sales Growth

4.4%

2009 Net Income (mil.)

$8,055.0

1-Year Net Income Growth

61.3%

Auditor

Deloitte & Touche LLP

Table 7. Berkshire Hathaway Company Financials, 2009 (Hoovers, 2010).

Table 8

Annual Balance Sheet

All amounts in millions of U.S. Dollars unless otherwise noted.

Assets

Dec 09

Dec 08

Dec 07

Current Assets

Cash

30,558.0

25,539.0

44,329.0

Net Receivables

14,792.0

14,925.0

13,157.0

Inventories

Other Current Assets

Total Current Assets

Net Fixed Assets

46,656.0

45,157.0

36,190.0

Other Noncurrent Assets

250,463.0

222,242.0

236,970.0

Total Assets

297,119.0

267,399.0

273,160.0

Liabilities and Shareholder's Equity

Dec 09

Dec 08

Dec 07

Current Liabilities

Accounts Payable

Short-Term Debt

Other Current Liabilities

Total Current Liabilities

Long-Term Debt

37,909.0

36,882.0

33,826.0

Other Noncurrent Liabilities

128,108.0

121,250.0

118,601.0

Total Liabilities

166,017.0

158,132.0

152,427.0

Shareholder's Equity

Preferred Stock Equity

Common Stock Equity

131,102.0

109,267.0

120,733.0

Total Equity

131,102.0

109,267.0

120,733.0

Shares Outstanding (mil.)

1.6

1.6

1.6

Table 8. Berkshire Hathaway Annual Balance Sheet, 2009 (Hoovers, 2010).

Table 9

CIK

Company

State/Country

0001274791

BERKSHIRE HATHAWAY FINANCE CORP

SIC: 6331 - FIRE, MARINE & CASUALTY INSURANCE

NE

0001067983

BERKSHIRE HATHAWAY INC

SIC: 6331 - FIRE, MARINE & CASUALTY INSURANCE

formerly: NBH INC (filings through 1999-01-05)

NE

0000109694

OBH LLC

SIC: 6331 - FIRE, MARINE & CASUALTY INSURANCE

formerly: BERKSHIRE HATHAWAY INC / DE / (filings through 1998-08-26)

BERKSHIRE HATHAWAY INC/DE (filings through 2000-02-11)

OBH INC (filings through 2010-02-17)

NE

0001015867

BERKSHIRE HATHAWAY LIFE INSURANCE CO OF NEBRASKA

NE

Table 9. Berkshire Hathaway SEC filings (Berkshire Hathaway, 2010).

LITERATURE REVIEW

The study proposes to contribute to the following three bodies of scholarship: 1) Business theories on high impact of venture capital firms (Citation string here); 2) Inquiries into insurance law and formative legislative policies directed at indemnity oversight and investment in recently corrupted financial and insurance sectors (Citation string here); and 3) Studies on corporate counsel as a functionary aspect to the insurance business, where attorneys are largely dependent upon client litigation a series of acquisitions, mergers, and takeovers in part to retention of employment contract.

METHODS

Methodological consideration on the project is based on a tri-partite research design, and will be conducted in three Phases: Phase I: Case study; Phase II: Legal Research; and Phase III: Financial & Industry Data.

Phase I: Case Study

The study is directed toward interpretation of how insurance investment firms form acquisition strategies through a case study of Berkshire Hathaway's conglomerate interests. Based on an imaginary proposition, where consideration of a major purchase in an insurance indemnity entity is undergoing comparative analysis, BH is provides the template for interpretation of the rationale of the acquisition process, and how investor stakeholders think about the insurance industry at the moment (Appendix C).

Phase II: Legal Research

More generally the case study encourages depth analysis of finance and fiscal decision making, and also looks at the prevalence of law, and lawyers more specifically, as catalysts to those strategies and performance on agreement. Contract law as an instrument of revenue generation is of core interest. Attorney practice in part to insurance underwriting agreements, litigation, and the acquisition, merger and takeover decisions making process is analyzed will augment the case study.

Phase III: Financial & Industry Data

The final phase of the research is dedicated to collection of aggregate financial and other insurance industry data. Information on accounting measures and standards, as well as financial risk mitigation policies, programs and protocols used in U.S. And external insurance management will augment the study's compendium of data (Appendix D). All aspects of BH and competitor financial audits, SEC filings, and investment prospectus will be interfaced with the analyses on insurance law and how insurance indemnity is discussed as an asset by both business services and attorney staff in those firms. BH subsidiary finance will contribute to interpretation of acquisitions (Appendix E).

DATA ANALYSIS

Review of findings to the study will be assessed by way of Six Sigma systems approaches to each phase of the research: Phase I: SWOT & PESTLE Analyses; Phase II: Charter and Legal Analyses; and Phase III: Trend Analyses (Harry et al., 2010).

Phase I: SWOT & PESTLE Analyses

Analysis of qualitative data drawn from the case studies of BH, ACE and SIG will be put into Six Sigma assessment for interpretation of organizational leadership, fiscal operations management, investment strategies and stakeholder interests into decision making matrices provided by the system's qualitative research tools, SWOT Analysis (Strengths, Weaknesses, Opportunities Strengths), and PESTLE Analysis (Political, Economic, Social, Legal, Environment). Classification instruments to the Six Sigma approach, further interpretation of determinants within the latter two phases of the data analysis will be assisted by insights drawn from the qualitative research.

Phase II: Charter & Legal Analyses

A 'total' organizational approach emerges to analyses of the insurance industry would not be complete without Six Sigma assessment tools for evaluation of Charter and Legal documents. Phase II also includes review of legislative policy reflected in the insurance and investment fields, and court proceedings of client litigation in addition to documents of acquisition, merger and takeover by BH. Adverse history in those case law findings will contribute to decision making models emergent from the study. Results to prior litigation by potential merger firms will also be analyzed for risk and performance. Finally, complications of corporate counsel, if any, will complete the second phase of the data analysis.

Phase III: Trend Analysis

Baseline organizational trend analysis is prospective to assessment of internal and external stakeholders. Financial data will be looked at through trend analysis of BH, ACE and SIG. As part of the Six Sigma assessment recommendation, statistical forecasting provides measurable criterion toward future investment decision making. Aggregate industry data will also be analyzed for comparative overview of the insurance market. Financial statement and other pertinent corporate data will contribute to the SWOT and PESTLE analysis frameworks where valid.

IMPLICATIONS TOTHE STUDY

In interest of the economy of insurance law, the proposed study follows the Warren E. Buffet's decision making process in collaboration with the Board of Directors of Berkshire Hathaway, Inc. And addresses the factors that go into the highly successful venture model… [END OF PREVIEW]

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