Berkshire Hathaway experiences significant asset devaluation on a long-term investment, prompting Warren Buffett to invest further in a high-yield, deep value opportunity.
Berkshire Hathaway, the multinational conglomerate led by Warren Buffett, is making moves in the media industry. The company is increasing its investment in Sirius XM, purchasing over $100 million of the berkshire hathaway stock, according to recent reports.
Sirius XM, the owner of Sirius Satellite Radio and the Pandora music streaming service, has been facing competition from companies like Spotify. However, the company is trying to rejuvenate subscriber growth by purchasing exclusive advertising and distribution rights to big-name podcasts and scaling its advertising business.
In an effort to streamline its operations, Sirius XM has also updated its technology platform and simplified its pricing and subscription plans. These changes are aimed at attracting more subscribers and retaining existing ones.
The dividend yield of Sirius XM currently stands at more than 5%, offering a significant return for investors. This dividend appears easily sustainable, given Sirius' trailing 12-month free cash flow yield of nearly 14.5%.
The investment in Sirius XM is believed to be managed by one of Berkshire's top investing lieutenants, Ted Weschler. Warren Buffett, on the other hand, is responsible for the current purchases of Sirius XM at Berkshire Hathaway.
Berkshire's position in Sirius XM is now worth approximately $2.6 billion, or around 37% of the company's outstanding shares. This investment comes as Berkshire is looking to diversify its portfolio, given the struggles of one of its key holdings, Kraft Heinz.
Kraft Heinz, formed through a merger of Heinz and Kraft in 2015, has been a poor performer for Berkshire Hathaway. The company has been burdened with high debt and weak growth, leading Berkshire to consider holding onto its investment until the fair value exceeds the carrying value.
In the second quarter, Berkshire marked down its position in Kraft Heinz by nearly $5 billion. As a result, Berkshire's representatives on Kraft Heinz's board of directors have announced they will leave the board.
Warren Buffett is planning to step down as CEO of Berkshire later this year, but his influence on the company's investment decisions remains strong. The strategic move towards Sirius XM is a testament to this.
Meanwhile, Kraft Heinz is exploring strategic alternatives, including a potential break-up of the company. This comes as Berkshire owns 27.5% of the outstanding shares in Kraft Heinz, making it one of the company's largest shareholders.
Sirius XM holds a license from the U.S. Federal Communications Commission that allows it to operate a satellite radio business and use the radio spectrum, potentially giving it a monopoly. This unique position could provide a competitive edge in the face of increasing competition.
In conclusion, Berkshire Hathaway's increased investment in Sirius XM signals a strategic shift in the company's portfolio. As Kraft Heinz struggles, Berkshire is looking to capitalise on the growth potential of Sirius XM, a company with a strong brand, exclusive content, and a unique business model.
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