On Jan. 20, Berkshire Hathaway (BRKA) shareholders are expected to open up the company's stock to a far less exclusive crowd of investors, a group who Chairman and Chief Executive Warren Buffett has long warned against.
By splitting Berkshire's class B shares 50-for-1, the price of the conglomerate's cheapest class of stock would fall from about $3,247 each to about $65. Class A shares—never split since Buffett began building Berkshire Hathaway 40 years ago—will still trade at about $97,500.
Buffett proposed the split despite his long-expressed view that, as he wrote in a shareholder letter in 1984, a lower share price would attract "inferior" buyers who don't share his value philosophy. If shareholders approve the split at a special meeting on Jan. 20—which they are widely expected to do—the stock could attract a broader array of new shareholders, including short-term traders. The split could also make Berkshire eligible for membership in the S&P 500-stock index, which would force index funds to pump billions of dollars into the stock.
Berkshire needs low-priced shares for its $44 billion acquisition of railroad Burlington Northern (BNI), whose shares are priced at a more typical $100. By lowering Berkshire's share price, even the railroad's smaller shareholders can receive a comparable amount of Berkshire stock as payment.
The stock split "is a real game changer," says Buffett watcher Robert Miles, author of the book The Warren Buffett CEO. It's as if Berkshire stock, once considered the "fine china" of the stock market, is now being made available to the "paper plate" crowd, Miles says. "Anyone who wants to eat at the table of Berkshire Hathaway can now do it."
Buffett, a billionaire and arguably the world's most famous investor, has many admirers who can't buy a batch of $3,250 shares but would find a block of $65 shares more affordable, says John Dorfman, chairman of Thunderstorm Capital and a Bloomberg columnist.
Even at a cheaper price, "people attracted to the stock will still mostly be admirers of Buffett's philosophy," Dorfman says. Don't expect a change in the company's "family feel," heightened every year by its annual meeting, a "Woodstock for capitalists," Dorfman says.
"It's a cult stock," says Stifel Nicolaus (SF) analyst Meyer Shields. Many follow the example of Buffett, the epitome of the buy-and-hold investor, by buying Berkshire shares and holding onto them for decades.
If Buffett admirers were the only ones expected to buy a cheaper Berkshire stock, he might have split its price a long time ago. But the stock split will make Berkshire shares more accessible to traders, many of whom don't hold onto shares for longer than a second.
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