Industrials

Berkshire Hathaway Enters DOJ Settlement Tied to USG -- Updated Buffett Statement

Berkshire Hathaway Inc. (NYSE: BRK-A) is supposed to be one of the squeaky clean companies as far as accounting and operational oversight are concerned. It turns out that even the cleanest of the clean can run into issues from time to time. Berkshire Hathaway Inc. (NYSE: BRK-B) has agreed to pay an $896,000 civil penalty to the U.S. Department of Justice (DOJ) for violating antitrust pre-merger notification requirements. One reference point may ease the impact of this news — the price tag is so small to a company like Berkshire Hathaway that this likely won’t even be a line-item in the next earnings report.

PLEASE NOTE: Warren Buffett has released a statement, which was provided at the end of this article.

The DOJ statement shows that the violation occurred when Berkshire Hathaway acquired voting securities of USG Corp. (NYSE: USG), tied to charges that the company it violated pre-merger reporting and waiting requirements.

This settlement arose after the Federal Trade Commission requested that the DOJ’s Antitrust Division file a civil antitrust lawsuit against Berkshire Hathaway. This was for violating the notification requirements of the Hart-Scott-Rodino Act of 1976. Simultaneously, the DOJ filed a proposed settlement. Note that the settlement requires court approval to put the charges behind it.

As a result of its acquisition of USG shares in December 2013, Berkshire Hathaway held approximately 28% of USG voting securities, with a value of more than $950 million. We could not help but notice that Berkshire Hathaway also disclosed in its full holdings as of June 30 just a week earlier that the USG stake had grown to more than 39 million shares. That stake was 34.89 million shares at the end of March.

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Before you get too worried about what this will do to Berkshire Hathaway earnings, don’t sweat it. Berkshire Hathaway posted net income applicable to shareholders of nearly $19.5 billion in 2013.

The DOJ statement represented what the terms to reach this pact were by saying:

The HSR Act of 1976, an amendment to the Clayton Act, imposes notification and waiting period requirements for transactions meeting certain size thresholds so that they can undergo premerger antitrust review. Federal courts can assess civil penalties for premerger notification violations under the HSR Act in lawsuits brought by the Department of Justice. For a party in violation of the HSR Act the maximum civil penalty is $16,000 a day.

Berkshire Hathaway’s A shares were down only 0.1% at $202,292 in mid-Wednesday trading. With a $323 billion market cap, this $896,000 fine will not likely even be a line item. That being said, one issue stood out: The 2013 annual report summary represented that Berkshire Hathaway files a 23,000-page Federal income tax return.

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UPDATE at 3:00 p.m. Eastern Time: Warren Buffett has issued his statement, saying”

As has been reported today, Berkshire Hathaway Inc. consented to a Final Judgment whereby we agreed to pay a civil penalty of $896,000 for failure to comply with the premerger reporting and waiting requirements of the Hart-Scott Rodino Act. We made a mistake when we overlooked the filing requirement. Berkshire had owned convertible notes of USG since 2008 and was effectively forced to convert the notes when they were called for redemption by USG in December 2013. This event triggered a filing requirement for Berkshire and we were late in realizing that fact.

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