Berkshire Hathaway Buying 38.6% Stake in Pilot Flying J -- Update
October 03 2017 - 12:23PM
Dow Jones News
By Nicole Friedman
Warren Buffett's Berkshire Hathaway Inc. on Tuesday made a bet
on American truckers with a deal to acquire nearly 40% of the
operator of Pilot and Flying J travel centers.
The Knoxville, Tenn.-based family-owned Pilot Travel Centers
LLC, better known as Pilot Flying J, has 750 locations in the U.S.
and Canada where truckers and drivers refuel, eat and shop. The
company said it generates more than $20 billion in annual
revenue.
Berkshire didn't disclose how much it paid for its initial 38.6%
equity stake in Pilot, one of the largest private companies in the
U.S. The Haslam family will hold a 50.1% stake in the company after
the deal closes, and FJ Management Inc., owned by the Maggelet
family, will hold an 11.3% stake, according to a press release.
In 2023, Berkshire plans to buy an additional 41.4% stake, and
the Haslam family will retain 20%.
The investment is Berkshire's latest bet on traditional forms of
transportation and U.S. economic growth. Mr. Buffett already owns
BNSF Railway, auto-dealership group Berkshire Hathaway Automotive,
car insurer Geico and private-jet company NetJets.
"There will be more goods moving to more people as the years go
by in the United States -- that I would bet a lot of money on," Mr.
Buffett, Berkshire's chairman and chief executive, said in an
interview.
The deal runs counter to the massive projected growth in
electric vehicles and self-driving cars and trucks expected by some
analysts. Belief in those businesses has helped Elon Musk's Tesla
Inc., for example, post a more than 60% stock-price jump in the
past year.
Jimmy Haslam, Pilot's chief executive, said in an interview that
both trends still have a long way to go before becoming mainstream
and disrupting the truck business.
"We personally believe -- and we spend a lot of time talking to
both truck and car manufacturers -- that it will be a long time
before there's not a person in the truck," Mr. Haslam said. "I
think diesel fuel will power trucks for a long time to come, and
there will be a person in that truck for a long time to come."
Even so, a fall in crude oil prices has hit Pilot in recent
years. Revenue at the company is down from about $30.8 billion in
2012, as lower crude-oil prices have led to lower prices for diesel
and other fuels that Pilot sells, according to the company.
The acquisition fits into Berkshire's typical strategy of buying
family-owned businesses and leaving the management teams and
headquarters in place. Mr. Buffett has done multistep acquisitions
like this before, including with Marmon Group in 2007.
In the transportation space, Mr. Buffett's biggest deal was for
BNSF in 2009. The company also is heavily invested in industrial
manufacturers and consumer brands that rely on transportation
networks to deliver their products including Kraft Heinz Co. and
Fruit of the Loom.
Mr. Buffett was introduced to Mr. Haslam in May by Byron Trott,
whose firm BDT Capital Partners LLC owned a stake in Pilot, Mr.
Haslam said. Berkshire is an investor in BDT, Mr. Buffett said. BDT
exited the Pilot stake as part of Tuesday's deal.
"We weren't actively looking for a partner," said Mr. Haslam, 63
years old. But "the more we talked, the more we felt it made
sense." Pilot has made several acquisitions in recent years and
plans to continue expanding, he said.
Mr. Haslam's father founded the company and remains chairman.
Three third-generation family members work at the company, Mr.
Haslam said.
Mr. Haslam's brother, Bill, was elected governor of Tennessee in
2010. Jimmy Haslam and his wife own the Cleveland Browns football
team.
Pilot Flying J was shaken by a scandal beginning in 2013 when
Pilot staff members were accused of defrauding trucking-company
customers that bought diesel at its truck stops by shorting rebate
money Pilot owed them. Pilot later accepted responsibility and
settled with the federal government for $92 million.
Mr. Haslam said the company had resolved the issue.
Berkshire held nearly $100 billion in cash as of June 30, a
record high, and Mr. Buffett has been looking for ways to spend it.
Two recent deal efforts fell through. Kraft Heinz earlier this year
dropped a $143 billion offer, which would have been partly backed
by Berkshire, for Unilever PLC. And Berkshire's utility arm struck
a deal in July to buy Texas power-transmission company Oncor, but
the deal was terminated in favor of a higher offer from Sempra
Energy.
Cara Lombardo contributed to this article
Write to Nicole Friedman at nicole.friedman@wsj.com
(END) Dow Jones Newswires
October 03, 2017 12:08 ET (16:08 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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