Warren Buffett's conglomerate takes initial 38.6% interest in
truck-stop operator
By Nicole Friedman
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (October 4, 2017).
Warren Buffett's Berkshire Hathaway Inc. made a bet on American
truckers with a deal on Tuesday to acquire nearly 40% of the
operator of Pilot and Flying J travel centers.
The investment in Pilot Travel Centers LLC, better known as
Pilot Flying J, is Berkshire's latest wager on traditional forms of
transportation and U.S. economic growth. The Omaha, Neb.,
conglomerate 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.
Pilot Flying J is one of the largest private companies in the
U.S. The Knoxville, Tenn.-based family-owned company has 750
locations in the U.S. and Canada, offering truckers a place to
refuel, eat and shop.
The company said it generates more than $20 billion in annual
revenue and employs 27,000 people.
Pilot has a dominant position in a market with few players,
similar to some of Berkshire's other large operating businesses.
Regulations and local politics can make it difficult to build new
truck stops, even amid high demand, analysts said.
Berkshire didn't disclose how much it paid for its initial 38.6%
equity stake in Pilot. 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 news
release.
Berkshire plans to buy an additional 41.4% stake in 2023, and
the Haslam family would retain 20%, according to the release.
Pilot is the largest operator of truck stops in the U.S.,
according to analysts, followed by Love's Travel Stops &
Country Stores and TravelCenters of America LLC, which has a market
capitalization of about $178 million. TravelCenters shares rose
8.4% to $4.50 Tuesday.
The deal runs counter to the long-term 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. post a more than 60% stock-price jump in the past year.
At the same time, the trucking industry is working to become
more fuel-efficient, which could reduce demand for diesel and other
fuels. Revenue at Pilot has dropped from about $30 billion in 2012
to $20 billion today, as lower crude-oil prices have led to lower
prices for diesel and other fuels that it sells, according to the
company.
Even so, Pilot's profit has grown in recent years, according to
credit analysts.
Federal limits on the time drivers can operate behind the wheel
and a new requirement to electronically log hours could help the
business by prompting drivers to stop more frequently, increasing
the need for parking spots, food and other amenities.
"They make their money on nonfuel stuff" like food and truck
servicing, said Bryan Maher, analyst at FBR Capital Markets &
Co. "One could see why Warren Buffett might be attracted to this
business, especially if you had an optimistic view of the
economy."
Jimmy Haslam, Pilot's chief executive, said in an interview that
some of the larger trends around electric vehicles and automation
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."
The acquisition fits into Berkshire's 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 Holdings Inc., a Chicago-based industrial
company owned by the Pritzker family, in 2007. In that deal, the
final acquisition price was based on Marmon's performance. Mr.
Buffett declined to detail the terms of the Pilot deal but said it
was a "reasonable assumption" that it would be structured
similarly.
Mr. Buffett was introduced to Mr. Haslam in May by Byron Trott,
whom the billionaire investor has praised in the past. Mr. Trott's
firm, BDT Capital Partners LLC, owned a small stake in Pilot.
Berkshire is an investor in BDT, which exited the Pilot stake as
part of Tuesday's deal and advised Pilot in the transaction.
"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, is governor of Tennessee. Jimmy
Haslam and his wife own the Cleveland Browns football team.
Pilot 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 skimming rebate money Pilot
owed them. Pilot later accepted responsibility and settled with the
federal government for $92 million.
Mr. Haslam said the company has resolved the issue.
Berkshire held nearly $100 billion in cash as of June 30, a new
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 04, 2017 02:47 ET (06:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
Berkshire Hathaway (NYSE:BRK.A)
Historical Stock Chart
From Aug 2024 to Sep 2024
Berkshire Hathaway (NYSE:BRK.A)
Historical Stock Chart
From Sep 2023 to Sep 2024