Above: Standing-room only for investors shortly before Charlie Munger took the floor at the Daily Journal Corp. annual meeting (photo: Jason Zweig).
By Jason Zweig
Updated Sept. 10, 2014 9:01 p.m. ET
Charles T. Munger defended recent decisions by his business partner, Berkshire Hathaway Inc. Chairman Warren Buffett, and predicted that Berkshire would grow robustly.
Mr. Munger, 90 years old and known for his bluntness, took on critics of the so-called tax-inversion deal, partly financed by Berkshire, in which Burger King Worldwide Inc. is planning to relocate to Canada in the wake of its proposed merger with Tim Hortons Inc.
Mr. Munger, who is Berkshire’s vice chairman, said that Ontario-based Tim Hortons is the larger of the two companies and, because “the bigger company should get the headquarters,” anyone who thinks the deal is motivated purely by tax considerations is “stark raving mad.”
Burger King is larger by stock-market value, though Tim Hortons generates more revenue.
Mr. Munger made the comments at the annual meeting Wednesday of Daily Journal Daily Journal Corp., a small legal publishing and software firm in Los Angeles of which he is chairman.
The deal, announced last month, will move Miami-based Burger King’s headquarters to Canada. The transaction has the potential to lower the combined company’s tax rates, experts say, especially if the company succeeds in expanding internationally, though Burger King officials have said it isn’t a tax-driven deal.
Mr. Buffett’s involvement thrust the billionaire into a controversy over inversions. Companies say these moves are legal and necessary to keep up with global rivals already taxed at lower, foreign rates.
Critics, including the Obama administration, say the moves deprive the federal government of revenue and increase costs on individual and corporate U.S. taxpayers.
The White House has said it is considering options to curb these deals, and legislation has been proposed in Congress.
Berkshire’s involvement was seen by some as particularly provocative, as Mr. Buffett personally has supported higher taxes on wealthy individuals; Mr. Obama nicknamed his proposed minimum tax on millionaires the Buffett Rule.
Mr. Buffett doesn’t consider the proposed takeover an inversion, a person familiar with his thinking has said.
Addressing other issues, Mr. Munger predicted Berkshire will greatly expand its utilities business over coming years.
“The chance that we won’t have a good return in that investment is practically zero,” he said.
In a few years, he said, he expects Berkshire “will be the biggest utilities business in the United States.”
He expects Berkshire will earn 8% to 9% on those businesses, rather than 12% as in the past, but “we are very favored” to be able to earn those returns, he said.
Mr. Munger said he and Mr. Buffett have begun an intense intellectual review of Berkshire’s growth over the past half-century, since Mr. Buffett took over the firm in 1965, to understand why it has done so well and to attempt to predict how it will do in the future.
“Berkshire has consciously avoided rapid technological obsolescence,” he said, adding that he thinks the conglomerate’s railroad, utilities and insurance operations, among others, shouldn’t face that risk.
Asked what “heuristics,” or decision rules, he had used to buy 1.6 million shares of Wells Fargo & Co. for Daily Journal in March 2009, during the depths of the financial crisis, Mr. Munger replied, “It was too cheap, and we had the money! It was within one day of the bottom tick,” or lowest market price.
“You can say I was a little lucky,” he added.
Mr. Munger was asked whether banks have been excessively punished by regulatory fines in the wake of the financial crisis. He replied that many mortgage lenders had engaged in “terrible misbehavior” and practices that were “grossly abusive” to borrowers.
Many bankers, he said, had become so overconfident during the credit boom that they believed “their excrement didn’t stink.”
He added, “There ought to be penalties for terrible behavior,” and if he were given the power, he would ban what he called “legalized gambling,” including short-term trading on stock exchanges, in derivatives and in money management. Said Mr. Munger, “It would take me about a week to write the necessary laws.”
He added, “It would totally change the economics of the real-estate market in New York.”
—Liz Hoffman contributed to this article.
Source: The Wall Street Journal
http://online.wsj.com/articles/munger-defends-buffetts-deal-1410397039