Warren Buffett stole headlines when he committed $12.1 billion in a deal to take ketchup maker HJ Heinz Co. private this year. Managers at his Berkshire Hathaway Inc. spent as much in 2012 while attracting less attention.
Executives who gathered last week for Berkshire’s annual meeting in Omaha, Nebraska, said in interviews that they plan to spend even more this year as they upgrade a rail network and energy utilities, expand manufacturing capacity and hunt for additional acquisitions.
Buffett, 82, relies on chief executive officers of the operating units to make deals and invest in plant and equipment to build the businesses and widen their competitive advantage. That helps slow the accumulation of cash and reduces the need for Buffett, Berkshire’s chairman and CEO, to find other uses for the money.
“If I don’t take my own cash flow and reinvest, all I do is add to his problems,” said James Hambrick, CEO of chemical maker Lubrizol, which Berkshire bought in 2011.
Hambrick’s unit plans to spend about $1.4 billion over the next three years as it replaces equipment and adds capacity to manufacture products like chlorinated polyvinyl chloride, a plastic that’s used for pipes in buildings. Even after similar spending and acquisitions in recent years, Lubrizol has still sent money to Omaha for Buffett to allocate, Hambrick said.
Capital spending at Berkshire climbed 19 percent to $9.78 billion in 2012 from a year earlier, driven by railroad Burlington Northern Santa Fe and utility owner MidAmerican Energy Holdings. Both use their cash flows and issue debt for regular investments in property, plant and equipment. Berkshire subsidiaries spent about $2.3 billion on 26 acquisitions in 2012, according to the company’s annual report.
Buffett agreed in February to spend $8 billion for a preferred stake and $4.12 billion for half the common equity in a new holding company that will own Heinz. The rest will be controlled by Jorge Paulo Lemann’s 3G Capital.
Berkshire shareholders should “delight” in the spending because Buffett and his deputies have a track record of using funds wisely, said James Armstrong, president of Henry H. Armstrong Associates, a Pittsburgh-based investment manager that oversees about $400 million, including Berkshire shares.
“You’re not going to see a lot of wasted money,” he said in a phone interview.