Thread by @BradleyDSchultz

No, it does NOT make sense to break up Berkshire Hathaway.

Some people say $BRK should be broken up. In its current configuration, I believe that a break up would immediately destroy about 25% or so of the intrinsic value of the company for long-term shareholders. 1/9

Although Mr. Buffett doesn’t throw out a wild percentage of value destruction from a break up, he does cover the main points at the bottom of page 6 of his 2018 Letter to Shareholders.

The main benefits of the current structure are: 2/9

berkshirehathaway.com/letters/2018lt…

(A) the free use of the float to use for equity investing rather than mostly fixed-income investing in other insurance companies. The Berkshire free insurance float to invest in equities is one of the most incredible long-term advantages that any company in the USA possesses. 3/9

Perhaps this enormous benefit is overlooked because Buffett made a large bet that did not work out: $BRK held excess cash reserves apparently in the expectation that entire businesses and preferred equity agreements would become attractively priced in an economic downturn; 4/9

due to the massive monetary & fiscal stimulus, this never occurred in 2020; $BRK was left with cash producing pathetic yields. It may have been Buffett’s biggest mistake, but he’s fixing it by large share repurchases while $BRK is still undervalued. 5/9

(B) Besides free use of insurance float, the combined structure allows $BRK to allocate to the highest return investment among many. I believe that much of the benefit will persist after Buffett since the CEO will be presented with myriad opportunities at his/her own company. 6/9

Also, $BRK can allocate capital in public markets & through private placements as well as within the company. Few companies have such a broad range of investment options. The public market opportunities include share repurchases where they would increase intrinsic value. 7/9

(C) Taxes can be reduced by reallocating capital within the company rather than paying it out as a taxable distribution. Tax credits, such as in the renewable energy business, can be utilized more fully due to the consolidated company structure, unlike many energy businesses. 8/9

Berkshire’s diverse businesses provide stability and survivability, lower taxes, and a low cost of capital. Breaking up Berkshire would be extremely value destructive in anything like its current state. 9/9

More on taxes and benefits of wholly-owned subsidiaries, from Buffett:

https://twitter.com/DevinHaran/status/1379541800214429697