Global Monitor: Buffett on the spot as shareholders seek answers

MORE than 30,000 people are expected in Omaha this weekend to listen to the company's top two executives, Warren Buffett and Charlie Munger, answer questions about the recession and Berkshire's largely unrealised investment losses. Shareholders will also vote on a proposal that would require the company to produce a sustainability report.

Buffett has made headlines in the past year with his views on the economy, including that the US is engaged in an "economic Pearl Harbor". And Buffett's Omaha-based company suffered its worst year since he took over in 1965.

"I think it has the potential to be one of the more interesting meetings," said analyst Justin Fuller, who writes about Berkshire online at www.buffettologist.com.

Berkshire's Class A stock lost 32% in 2008, and Berkshire's book value, assets minus liabilities, declined 9.6% to $70,530 per share. That was the biggest drop in book value under Buffett and only the second time book value has declined.

But despite Berkshire's rough year, which was depressed by unrealised multi-billion-dollar derivative losses, the company still outpaced the market index Buffett uses as a measuring stick. The S&P 500 fell 37% in 2008. Berkshire still reported a 2008 profit of $4.99bn, or $3,224 per Class A share. That was down 62% from the previous year, but better than many companies.

"This market meltdown has provided the opportunity for him to put the finishing touches on his Berkshire Hathaway masterpiece," said Fuller, who works with Midway Capital Research & Management in Chicago.

Berkshire made several large investments in 2008, including investing $6.5bn in equities related to Mars' acquisition of chewing-gum giant Wrigley. Berkshire also helped finance the deal and received a $2.1bn minority equity interest in the Wrigley subsidiary and took on $4.4bn of subordinated debt.

Early in 2008, Berkshire acquired 64% of industrial conglomerate Marmon Holdings for more than $4.5bn. Marmon includes more than 125 manufacturing and service businesses across the transportation, energy and construction markets. Marmon makes products ranging from railroad tank cars to metal fasteners.

Berkshire also offered financing to several iconic companies in exchange for steep interest of at least 10% and, in some cases, warrants to buy stock. Berkshire invested $5bn in preferred shares of investment bank Goldman Sachs Group Inc, $3bn in conglomerate General Electric, $2.6bn in Swiss Reinsurance, $250m in Tiffany & Co debt and $300m in Harley-Davidson debt.

After the question-and-answer period ends at this weekend's meeting, a group of shareholders will try to persuade Berkshire officials to consider producing annual sustainability reports about the company's subsidiaries and investments.

Simon Billenness, who plans to present the shareholder resolution, said the sustainability reports should address any environmental or social risks associated with Berkshire's holdings so investors can better evaluate the company.

"The key thing here is to disclose the risk ahead of time," he said.

But Buffett doesn't disclose anything more than he's legally required to so he can protect the company's investment strategies.