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Berkshire Hathaway relies less on its insurance units

Many wonder what company will be like when Warren Buffett is gone as chairman and CEO.
By JOSH FUNK Published: September 1, 2012
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— Warren Buffett's birthday this week was good news for Berkshire Hathaway investors who could celebrate another year of the Oracle of Omaha's leadership. But the milestone also reminded shareholders they need to think about who will run the evolving company after Buffett is gone.

The more than 80 businesses that Buffett has assembled at Berkshire are mostly humming along well, posting a profit of more than $3 billion in the most-recent quarter. Its Class A stock closed at $127,183 Thursday — less than $3 from its 52-week high set in early August.

So there's plenty for shareholders to celebrate.

But Buffett's advancing age — he turned 82 on Thursday — coupled with his radiation treatment for prostate cancer this summer, keeps his mortality on the minds of many Berkshire investors. Buffett has said the cancer isn't life-threatening, and he is feeling good.

Buffett has outlined Berkshire's succession plan and reassured investors that his board has chosen a successor and two backup candidates, although he won't say who the company's next CEO will be. Buffett is both chairman and CEO.

Buffett has no plans to step down, saying he enjoys the deal making too much, even though he hasn't landed a sizable acquisition since buying chemical maker Lubrizol for $9 billion last year.

Whoever takes over Berkshire after Buffett will inherit a sprawling conglomerate that is evolving with each new acquisition. The Omaha-based company now relies less on the insurance companies and investments it has long been known for and more on its railroad, utility and manufacturing companies.

“The insurance is increasingly more of an engine that runs in the background instead of the driver of the business,” said Jeff Matthews, an investor who wrote “Secrets in Plain Sight: Business & Investing Secrets of Warren Buffett.”

Buffett did not respond to an interview request for this story.

What makes money

Berkshire Hathaway's second-quarter earnings report earlier this month showed that easily more than half of the company's profits come from mundane companies like its electric utility MidAmerican Energy, Lubrizol, BNSF Railway, manufacturing and tool companies.

The trend has been strengthening ever since Buffett's firm acquired the Burlington Northern Santa Fe Railway in 2010, but it's even more apparent now that Lubrizol has been part of Berkshire for nearly a year.

“Even in the best of operating environments, the insurance side of the business will never out-earn the noninsurance side ever again,” said David Rolfe, chief investment officer at Wedgewood Partners, which counts Berkshire as its second-biggest investment.

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Other subsidiaries

Besides insurance and manufacturing, Berkshire's subsidiaries include clothing, furniture, ice cream, private jet and jewelry companies. It also has major investments in such companies as Coca-Cola Co., IBM and Wells Fargo & Co.

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