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Berkshire Buys Back $1.2 Billion in Stock

Source: WSJ - Erik Holm

Posted on 12 Dec 2012 by Neilson

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Berkshire Hathaway buys back stockWarren Buffett's Berkshire Hathaway Inc. bought $1.2 billion of its own shares from the estate of a "long-time shareholder" as it increased the amount it is willing to pay to repurchase its stock.

Berkshire's board, headed by Mr. Buffett, authorized the repurchase of 9,200 of Berkshire's Class A shares for $131,000 each. It said it was now willing to pay up to 120% of book value per share to buy back its stock.

Both moves were announced in a news release just after markets opened Wednesday morning. Trading in Berkshire stock was halted until the statement was released at 9:38 a.m. East Coast time. When trading resumed, Berkshire shares rose 2.4% to $133,941.

Berkshire's book value, a measure of assets minus liabilities, was $111,718 per share as of Sept. 30, meaning the maximum price the company is authorized to pay under the new criteria is about $134,000.

Berkshire first authorized a repurchase program, at prices no higher than 110% of book value per share, in September 2011.

Companies repurchase their own stock to reduce the amount of publicly traded shares in circulation. By doing so, they increase the scarcity of the stock, as well as the divisor that is used to calculate earnings per share.

When Mr. Buffett announced the initial authorization last year, he said that, at the right price, "repurchases will enhance the per-share intrinsic value of Berkshire shares, benefiting shareholders who retain their interest."

But until now, Berkshire hadn't spent much of its massive cash stockpile on buybacks.

The Berkshire statement didn't identify the shareholder whose estate sold the shares.