Volume 20, Number 40 -- November 28, 2011

Warren Buffett Amasses a $10.7 Billion Stake in Big Blue

Published: November 28, 2011

by Timothy Prickett Morgan

If you didn't think that IBM was really a financial services company as much as an IT provider, now that Warren Buffett's Berkshire Hathaway holding company has purchased a whopping $10.7 billion stake in the company, you might just change your mind.

During a wide-ranging interview on CNBC on November 14 after The Four Hundred went on Thanksgiving hiatus, Buffett, one of the richest men in the world, said he had been accumulating shares in IBM since March and kept right on buying into the fourth quarter. He has stopped buying shares, which is why the Oracle of Omaha is willing to admit that he now has a stunning 64 million shares in IBM, about 5.5 percent of outstanding shares.

Buffett's Berkshire Hathaway holding company has big stakes in insurance giant Swiss Re and financial services company Wells Fargo, and he likes financial services companies. Buffett didn't just come out and tell CNBC what he was investing in, but said it was done under code-name "Harold" and then asked them to think. In 2001: A Space Odyssey, the thinking supercomputer at the heart of the spacecraft was HAL, a one letter backshift from IBM. (I have always wanted to start a company called JCN, and I am not the first one I am sure.) He told them to "think" and then they figured out it was Big Blue. Buffett doesn't necessarily like financial services companies better than tech companies, but admits he doesn't understand tech companies as well and hence doesn't typically plunk his money into them.

Of course, as I have pointed out many times, IBM itself is more like a bank or a utility company than a hardware manufacturer or IT supplier, with its hardware and software entrenched in the Global 2000 so deeply and often rented instead of bought. In addition to the $10.7 billion stake in IBM, Buffett's holding company has a $199.2 million stake in Intel. You can see his holdings in this 13F report to the Securities and Exchange Commission, which outlines the $59.1 billion in holdings that Berkshire Hathaway has in companies it does not control outright. (There's a separate filing for another chunk of IBM shares here.)

The funny thing to ponder, of course, is how Buffett's own acquisitions of stock in the past nine months might have been one of the driving forces--if not the only driving force--pushing up Big Blue's stock price. IBM's shares only lost 1.3 percent in the wake of Buffett's disclosure, or about $2.8 billion to a total market capitalization of just under $220 billion. There were a lot of other factors in the market that same week driving all stocks up and down like crazy, and Buffett's investment only dropped about $136 million by the following Friday after the announcement came out (November 18). At 64 million shares and a dividend of 75 cents per share, Buffett's Big Blue stake will net him $192 million a year no matter what the stock price does. No sweat.

Rich or poor, it's good to be rich.


What Could IBM Do Instead Of Spending $12.2 Billion On Shares?

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Palmisano Says IBM Will Double Up Profits By 2015

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IBM Boosts Dividend and Share Buybacks, What About i Marketing?

Power Systems Sales Jump 19 Percent in Q1

IBM Lays Out Plans for Future Growth and Profits

Palmisano Rakes in $9 Million for IBM's 2010 Performance

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Editor: Timothy Prickett Morgan
Contributing Editors: Dan Burger, Joe Hertvik, Victor Rozek,
Jenny Thomas, Hesh Wiener, Alex Woodie
Publisher and Advertising Director: Jenny Thomas
Advertising Sales Representative: Kim Reed
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