A Cash Hoard Stirs Speculation – And It's Not the One You Think

SMITH BRAIN TRUST – A lot of chatter this week has been about Apple's whopping quarter-trillion-dollar cash stockpile. But Warren Buffett's Berkshire Hathaway is also sitting on a lot of money. The company, which has a history of making marquis acquisitions, has some $86 billion on hand. 

And now there are tantalizing rumors that Buffett might be eying Nike or Costco. But David Kass, clinical professor of finance at the University of Maryland's Robert H. Smith School of Business, has his doubts.

"First of all," says Kass, who has closely followed the so-called Oracle of Omaha's investments and philosophy for more than 35 years, "Buffett will only do a friendly deal where the target firm agrees to be acquired and not do any hostile takeovers. Second, Buffett will do a deal for a good company at a fair price. If he acquired either company, he would have to offer a premium of at least 25 percent over the current market price. He might consider that price to be too high. Also, what is the urgency of buying now? He is very patient. He could have tried to buy these companies earlier if he was interested and the price was right. Costco is a more interesting possibility since Charlie Munger is on its board of directors and, therefore, very knowledgeable about the company."

Kass highlights the most likely scenario for the next Berkshire takeover, saying Warren Buffett is likely to partner with 3G Capital of Brazil to acquire another food company through Kraft Heinz. Berkshire and 3G each own about 25 percent of the food and ketchup giant, with Berkshire as the financing partner and 3G Capital as the operating partner.

"Buffett wants to buy a well-run company at a reasonable price with management that agrees to stay in place after the acquisition," Kass says. "It needs to have a durable competitive advantage, it needs to be large in size, and it needs to be in an industry that Warren Buffett understands."

Among the companies that fit that bill, he says, are Mondelez, Unilever and Hershey.

Kass is heading to Omaha this weekend for the annual Berkshire Hathaway shareholders' meeting. Buffett and vice chairman Charlie Munger are expected to answer five hours of shareholder questions Saturday, during the weekend event, which has come to be known as "Woodstock for Capitalists."

In addition to hints about potential acquisitions, shareholders will be listening for clues about the company's next potential CEO. Kass says Ajit Jain, 65, is best poised to take over the reins, should a new chief executive be tapped in the next year or two. If the 86-year-old Buffett stays on as CEO for longer, Greg Abel, 54, becomes the likely successor, Kass says.