New Berkshire Chief’s Big Deal Gets Cool Reception from Investors

Berkshire Hathaway has lined up its first major acquisition under CEO Greg Abel, the Canadian executive who took over from Warren Buffett at the start of the year. The $1 trillion conglomerate agreed to pay $6.8 billion in cash for homebuilder Taylor Morrison.

Investor reaction could be summed up in the words of Abel’s Canuck compatriot Shania Twain, who famously sang, “that don’t impress me much.” Berkshire shares fell 1% on Monday, the first day of trading after the deal was announced on Sunday. But some analysts took a different view, noting the deal’s DNA — cash, real estate, an industry the company knows — has all the hallmarks of a classic Berkshire bargain.

A Greg-arious Offer

With the stock market chasing record after record, Berkshire has been highly selective with its massive cash stockpile in recent years. The company ended the first quarter with an unprecedented $381 billion in dry powder. January saw the close of the seemingly anomalous $9.7 billion acquisition of Occidental Petroleum’s chemical business, a deal struck under Buffett that represented Berkshire’s biggest acquisition since 2022.

The Taylor Morrison acquisition would be the first major, multibillion-dollar transaction under Abel, who pledged to maintain Buffett’s stoic commitment to value-hunting and said last month that he had a list of takeover targets he would move on at the right price. His former boss, who remains company chairman, emphasized that the latest deal is indeed his successor asserting himself. “I never talked to the CEO,” Buffett told CNBC’s Squawk Box. “He has launched.”

With that launch, Berkshire is expanding a well-established corner of its portfolio: It already owns a residential real estate brokerage as well as the Clayton Homes manufactured housing builder; Abel said he plans to unify Taylor Morrison and Clayton into a “combined platform.” While the market offered a humdrum reaction, it may be overlooking underlying value:

• Last year, Taylor Homes made $7.8 billion in revenue and completed 12,997 home closings. 
• Essentially, Abel is betting the US housing market will soldier through affordability headwinds, with UBS analysts characterizing the deal as a “vote of confidence in the mid-long term outlook for the homebuilding industry.” UBS estimates the US housing market is “underbuilt” by roughly 7 million units.

Home Run: Berkshire’s braintrust is not alone in seeing an opportunity in homes. Last month, Tokyo-based Sumitomo Forestry closed a $4.5 billion cash deal for Nevada-based homebuilder Tri Pointe. Earlier this year, Dream Finders Homes tried to buy Beazer Homes for $700 million, an offer that Beazer’s board rejected, claiming it “significantly undervalued the company.”