Original Author: Zhao Ying

Original Source: Wall Street Journal

Berkshire Hathaway is actively defining the investment style of the post-Buffett era—selling off Chevron shares at a high price and instead investing $8.5 billion in the U.S. housing market.

According to a report by the Wall Street Journal on the 31st, Berkshire agreed to acquire the U.S. homebuilder Taylor Morrison for $72.50 per share in an all-cash deal, which represents a premium of about 24% over the stock's closing price last Friday, with an equity value of around $6.8 billion; after adding debt, the total enterprise value is $8.5 billion. This is the first major acquisition completed by new CEO Greg Abel since he took over from Buffett in January this year.

At the same time, Berkshire reduced its holdings in Chevron by about $8 billion in the first quarter, cutting its stake in the company by about one-third.

The combination of these two moves clearly outlines Abel's asset allocation strategy: cashing out energy gains at a high price and reallocating capital to the cyclically recovering housing sector. This combination is expected to boost market confidence—Berkshire's Class B shares have fallen 28% over the past year, and investors had previously held a wait-and-see stance regarding the management transition.

Abel's Debut: Half a Year into the Housing Sector

Abel officially took over as CEO in January of this year, about half a year ago. According to insiders, Abel proactively reached out to Taylor Morrison CEO Sheryl Palmer with an advisor's recommendation in the spring of this year and pushed for negotiations to come to fruition. The deal is expected to be completed in the second half of this year, and Palmer will continue to serve after the closing.

In a statement, Abel said that Taylor Morrison would integrate with Berkshire's Clayton Homes in the future, "enabling us to help more Americans achieve their dream of homeownership." This statement gives the acquisition a clear strategic logic—by integrating residential-related assets, it will construct a more complete housing industry chain.

Earlier this year at Berkshire's annual shareholder meeting, Abel publicly stated that the company had compiled a list of acquisition targets, emphasizing that "market dislocations will provide us with opportunities for action." This swift move is viewed by outsiders as a significant signal of Abel fulfilling his commitments and demonstrating acquisition execution capability.

Betting on Housing Recovery: Industry Logic and Policy Background

Taylor Morrison, headquartered in Scottsdale, Arizona, operates in 21 markets across 12 U.S. states, with revenues of $8.1 billion last year. Besides its traditional residential development business, it operates rental communities under the Yardly brand and offers financial services such as mortgage loans to clients.

The acquisition occurs against the backdrop of a moderate recovery in the U.S. residential construction industry. According to the National Association of Home Builders (NAHB), new single-family housing starts are expected to increase slightly by 1% to 940,000 units this year, with a projected further increase of 5% to approximately 984,000 units next year.

Berkshire is not unfamiliar with this sector. Previously, the company held shares in Taylor Morrison's competitors DR Horton, Lennar, and NVR, and has stakes in paint manufacturer Benjamin Moore and roofing and insulation materials company Johns Manville. The direct acquisition of Taylor Morrison further deepens its existing industry layout.

Additionally, the residential construction industry is a key area for the Trump administration's push on housing affordability issues before the midterm elections. Taylor Morrison has participated in discussions on a federal "rent-to-own" program aimed at helping more Americans enter the real estate market and absorb inventory, which provides additional policy tailwinds for this transaction.

Reducing Chevron Holdings: Cashing Out Energy Gains

Just before and after announcing the acquisition of Taylor Morrison, Berkshire sold about $8 billion of Chevron shares reducing its stake from about one-third to 4.2%.

According to regulatory documents submitted by Berkshire on Friday, following the sale, the company remains the fourth-largest shareholder of Chevron, and Bloomberg data shows the average sale price was $182.59 per share.

Chevron's stock price reached an all-time high in March this year amid the U.S.-Russia conflict and rising oil prices, providing Berkshire with an ideal cashing window. Looking back at the holding history, Berkshire built its position in Chevron when the stock was around $65 in 2020, and increased its stake to about $124 around the outbreak of the Ukraine conflict in 2022; its recent cash-out at an average price exceeding $182 has yielded significant returns.

Cash Deployment: The Direction of $381.1 Billion in Reserves

The deeper significance of this transaction lies in the external reevaluation of the direction of Berkshire's massive cash reserves. As of the end of the first quarter of this year, Berkshire held a record $381.1 billion in cash and short-term U.S. Treasury securities.

In the final years under Buffett's leadership, the pace of the company's acquisitions had noticeably slowed. In October last year, Berkshire acquired the OxyChem division of Occidental Petroleum for $9.7 billion at a time when Abel was still in a waiting phase. In the first quarter of this year, the company also established a new position in Delta Air Lines worth $2.6 billion.

In his first annual letter to shareholders this year, Abel reiterated the acquisition philosophy: "Significant investment opportunities can be shared with us discreetly and receive a rapid response." He also emphasized that the large cash reserves do not mean the company is exiting investments; rather, the company will maintain patience and discipline in searching for truly suitable opportunities.

The market generally believes that Abel completing this large transaction just half a year into his tenure will increase the likelihood of Berkshire further utilizing its cash reserves and accelerating the pace of acquisitions. In this transaction, Goldman Sachs and Moelis acted as financial advisors to Taylor Morrison, while Simpson Thacher provided legal advisory services; Gibson Dunn served as legal counsel for Berkshire.

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