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| Buffett picks Sokol to run NetJets, fuels speculation |
| Bloomberg / New York Aug 06, 2009, 00:09 IST |
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Berkshire Hathaway Inc named David Sokol to run its money-losing NetJets Inc airplane-sharing unit, adding to speculation he may one day lead the investment and holding company built by billionaire Warren Buffett.
Sokol was tapped by Buffett to replace Richard Santulli on an interim basis as chief executive officer of the Woodbridge, New Jersey-based airplane-rental unit, according to a statement yesterday. Sokol, 52, is chairman of Berkshire’s energy business.
Buffett, Berkshire’s leader since the 1960s, is monitoring candidates to succeed him in overseeing businesses from candy and furniture to energy and insurance. The potential successors all work for Omaha, Nebraska-based Berkshire, and picking one is the board’s most important job, Buffett, 78, has said.
“He must think a lot of Sokol’s abilities to throw him into this,” said Andrew Kilpatrick, who wrote the two-volume “Of Permanent Value: The Story of Warren Buffett.” “I don’t know it means he’s an heir apparent, but it does mean he’s in there.” Berkshire stockholders and Buffett-watchers have long speculated about who will fill the CEO position. Barron’s has reported that Sokol, chairman of MidAmerican Energy Holdings Co, was the most likely successor.
Tony Nicely, the head of Berkshire’s Geico Corp car insurance business, and Ajit Jain, who runs a unit that sells reinsurance, are also on media lists of potential successors. Santulli had also been included on some lists.
“It’s big news,” said Jeff Matthews, author of “Pilgrimage to Warren Buffett’s Omaha,” of yesterday’s announcement that Sokol would take over for now. “That kind of tells you everything you need to know about where the company is headed.” Berkshire made its first foray into the energy business with the agreement in 1999 to buy MidAmerican for about $9 billion in cash and assumed debt. The firm’s largest individual shareholder before the deal had been Buffett’s Omaha neighbour, Walter Scott.
Sokol, the CEO of the business at the time, in 2008 yielded the post to his second-in-command, Gregory Abel, saying that working as the MidAmerican’s chairman would allow him to focus more on finding acquisitions. Scott, Sokol and Abel retain minority interests in MidAmerican.
“Nine years of working with Dave, Greg and Walter have reinforced my original belief: Berkshire couldn’t have better partners,” Buffett wrote in his letter to shareholders this year that accompanied Berkshire’s 2008 annual results. Sokol and Abel, he said, “have achieved results unmatched elsewhere in the utility industry.”
Sokol and Abel oversaw the acquisition of PacifiCorp for $9.4 billion in cash and assumed debt in 2005, adding low-cost power generators in the western US More recently, Sokol traveled to China at the request of Berkshire Vice Chairman Charlie Munger to explore a possible investment in electric car- maker BYD Co Berkshire agreed last year to take a minority stake in the firm.
BYD started selling the F3 DM, the world’s first mass- produced plug-in hybrid, in December and is working with MidAmerican on the development of rapid-charge batteries for storing power from wind and solar generation, Sokol said in September.
Sokol has dismissed talk that he may someday lead Berkshire.
“There’s a dozen folks more talented than I am” at Berkshire who could take over as CEO, Sokol said in a Bloomberg Television interview in May. He said of the prospect of replacing Buffett, “For all of us inside Berkshire, that will be the worst day we can imagine.”
NetJets has suffered as the US recession deepened in the last year. The company posted a $96 million pretax loss in the first quarter, compared with profit of $45 million a year earlier, on writedowns.
Santulli exits after about 25 years with the firm. In 1986, the executive invented the notion of “fractional” jet ownership, in which individuals and companies buy shares of a private plane’s flying time in lieu of buying the jet. Buffett was a NetJets customer before buying the company from Santulli in 1998 for $725 million in cash and stock.
Under Buffett, Berkshire bankrolled NetJets’ fleet of Boeings, Citations and Gulfstreams. It also underwrote the company’s expansion to Europe.
“If you were to pick someone to join you in a foxhole, you couldn’t do better than Rich,” Buffett said of Santulli in his letter to Berkshire shareholders that accompanied 2007 results. “No matter what the obstacles, he just doesn’t stop.”
Santulli said in the statement that he informed Buffett of his decision to leave NetJets yesterday morning, hours before the afternoon announcement. Buffett accepted the resignation with “reluctance,” according to the statement.
NetJets “has got to be the worst business in the Berkshire portfolio right now, or close to it,” said Matthews, the founder of hedge fund Ram Partners LP. “It’s not necessarily Santulli’s fault. NetJets must be sucking wind right now.”
Buffett also replaced the head of Berkshire’s Helzberg Diamond Shops Inc this year. He named Beryl Raff, an executive vice president for JC Penney Co, to immediately succeed Marvin Beasley as jewelry sales declined amid the recession.
Last May, Berkshire said John Gainor would take over the CEO job at Berkshire’s International Dairy Queen Inc, with exiting chief Charles Mooty staying on as chairman of the ice cream company until the end of 2008.
Maryann Aarseth, a spokeswoman for NetJets, didn’t return a call seeking comment. Buffett didn’t respond to a request for comment left with assistant Carrie Kizer.
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