Warren Buffett's move to split Berkshire Hathaway Inc Class B shares will tempt smaller investors to buy into the once high-priced stock and could lead to its eventual inclusion in the S&P 500 index.
Shareholders of Berkshire, the Omaha, Neb.-based insurance and investment company, approved on Wednesday a 50-for-1 split of Class B shares in connection with the conglomerate's takeover of Burlington Northern Santa Fe Corp at a special meeting in Omaha.
The split pares the partial shares Berkshire issues to BNSF investors.
Buffett said at the meeting that the split was needed to make the transaction easier for small investors.
Investment managers and analysts expect the move will boost demand for the B shares, which closed New York Stock Exchange trade at $3,476, up more than 4 percent after the vote.
With the split, each share would be worth about $69.
"This will definitely increase demand. The high share price left out many people from getting involved in something they otherwise would very much like to have," said Patrick Watson, an analyst at Capital Cities Asset Management in Austin, Texas.
Advisers said the split would boost liquidity and could raise the chances that Berkshire may be included in the Standard & Poor's 500 stock index, which could further increase demand for the stock.
"It will be a good situation if it gets into the S&P 500, since there is all that built-in buying with different index funds," said Alan Lancz, head of Alan B. Lancz & Associates Inc., an investment advisory firm in Toledo, Ohio.
Berkshire is the largest U.S.-based company by market value not included in the S&P 500 because the highly priced shares traded on thin volume.
Before the split, the Class B shares traded at six times the price of Google, the highest priced stock in the S&P 500 at $580.41 a share.
One tripping point for Berkshire's inclusion in the index is its first quarter loss last year, said Howard Silverblatt, senior index analyst at Standard & Poor's Indices in New York. S&P looks for four straight quarters of profitability when choosing stocks to include in the index.
"There are other criteria such as leverage and balance sheet that could make up for that one-time item. And let's face it, the last year has not been the best for earnings for anyone," said Silverblatt, though he gave no indication that Berkshire was being considered for inclusion in the index.
Buffett, 79, had never split Berkshire's stock. One of the world's most respected investors, Buffett reasoned in the past that splits could attract speculators rather than the long-term investors he prefers.
Buffett controls 31.6 percent of the voting power of Berkshire stock and advisers said it was surprising that the so-called "Oracle of Omaha" would dilute the value of his pricey shares.
"Buffet has never been someone to split the stock. But when they launched the B shares, it was a de facto split, so it is really moot," said Richard Steinberg, of Steinberg Global Asset Management Ltd in Boca Raton, Fla., who manages about $470 million, including over 4 million in Berkshire shares.
Jeffrey Saut, chief investment strategist at Raymond James in St. Petersburg, said the "un-Buffett-like" split followed the move to buy BNSF at a premium — a move Saut called equally out of character for an investor known for exemplifying the creed of buying low.
"I think he was just sitting on too much cash. There is talk he will pass the torch and I think he was worried the heir apparent could invest in the wrong thing," Saut said.
While most advisers thought the split would be a boost for the stock, others thought the move could attract the kind of investors that Buffett had long worried about.
"History shows that stocks that are split to achieve a lower price are degraded," said Frank Pavilonis, senior market strategist at Lind-Waldock, a retail brokerage firm, in Chicago.
Increased demand will likely lead to more analysts at Wall Street firms and other major brokerages to cover Berkshire, which has received little attention from research analysts.
The issuance of "buy" ratings could help reinforce demand, advisers said.
"Some people feel more comfortable when they see things in writing and can get reports from several different firms," said Lancz.
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