Warren Buffett battles in court over truck stops
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Berkshire Hathaway owns 80% of truck stop chain Pilot Travel Centers, which is one of America's largest private companies with around 30,000 employees. But that remaining 20% has become subject to a very ugly legal fight.
Why it matters: Warren Buffett's credibility as an acquisition partner is at stake.
Backstory: Buffett's Berkshire in 2017 bought nearly 39% of PTC for $2.76 billion from the founding Haslam family, which is better known for owning the NFL's Cleveland Browns and the NBA's Milwaukee Bucks.
- That deal required Berkshire to increase its ownership to 80% in early 2023, which it did for an additional $8.2 billion.
- Both prices were calculated by a fairly basic formula that multiplies PTC's EBIT by 10, minus adjustments for cash and debt.
- Berkshire also is subject to an annual put option on the remaining 20% stake.
Driving the news: The Haslams sued Berkshire in late October, claiming that the firm had inappropriately changed the accounting terms that would determine the price of the put option.
- Specifically, it alleges that Berkshire, upon assuming control of PTC's board, implemented "pushdown accounting," which effectively incorporates Berkshire's cost basis into the company's financials. As such, EBIT is lower.
- The dollar amounts are redacted, and the plaintiff's attorney didn't return a request for comment, but back-of-the-envelope math suggests that the new accounting could reduce the stake's value by around $1.28 billion. In short, the Haslams want Berkshire to revert to the historical accounting.
- Berkshire doesn't dispute the accounting change but seems to believe it's allowed via terms of the original contract. Moreover, it alleges in a countersuit that the Haslams tried to bribe more than a dozen PTC executives to artificially inflate earnings.
- Both complaints include a discussion of a phone call between Buffett and PTC founder Jim Haslam, but quite different interpretations of what was said.
Look ahead: Timing is of the essence here, since the Haslams need to decide whether or not to exercise their put.
- A trial on their claim is set to be held in Delaware early next month.
- Berkshire had asked that its counterclaim be heard at the same time. The judge ruled last Friday that it could do so, but only if it limited discovery to information that Berkshire needed to defend itself from the original complaint.
- Berkshire on Monday declined that offer, which means its case will be heard at a later date.
