Source Credit : Reuters
Berkshire Hathaway's shares experienced a 2% decline in premarket trading following the announcement that renowned investor Warren Buffett will be stepping down as CEO of the $1.16 trillion conglomerate after a remarkable 60-year tenure at the helm.
The company's board unanimously voted to appoint Vice Chairman Greg Abel as President and CEO, effective next year, with Warren Buffett remaining as Chairman. This decision was initially announced by Buffett during Berkshire's annual meeting in Omaha, Nebraska, on Saturday.
Berkshire Hathaway, a conglomerate that holds investments in railroads, insurance companies, and an ice cream maker, has been strategically preparing for the eventual departure of its long-time leader, Warren Buffett. With Buffett, 94, at the helm since 1965, the company has been carefully planning for a smooth transition of leadership. However, the recent announcement of Buffett's intention to step aside came as a surprise, as the renowned investor had not previously indicated a clear timeline for his succession.
The value of Class B shares of the conglomerate has decreased to $528.80, potentially resulting in the loss of billions of dollars in market value if the downward trend continues. Despite this recent decline, the shares have seen a significant increase of approximately 33% over the past year, outperforming the 12% gain in the S&P 500 index.
The surprise timing of the announcement, "notwithstanding likely successor Greg Abel's increasingly demonstrated competence, should pressure the shares on Monday", KBW analyst Meyer Shields wrote in a note.
However, Buffett's ongoing role as chairman could provide reassurance to investors as Abel assumes the responsibilities from an iconic figure whose reputation and legacy cast a long shadow. Shareholders of Berkshire Hathaway have expressed uncertainty regarding the future performance of the holding company's 189 operating businesses, $264 billion in stocks, and $348 billion in cash once the individual so closely associated with it exits the spotlight.
Buffett's exit from the company "will probably impact investors' view of Berkshire more than it will actual operations", Shields said.
Prior to Buffett revealing his plan, Abel, who was unaware of the decision, informed attendees at the annual meeting that he intended to take on a more active role in overseeing Berkshire subsidiaries. He expressed his hope that this increased involvement would be positive, while emphasizing that the subsidiaries would still maintain a high level of autonomy in their operations.
Since 2018, Abel has been overseeing the leadership of most Berkshire businesses. Meanwhile, the insurance units, including Geico, General Re, and National Indemnity, have been reporting to Vice Chairman Ajit Jain. This reporting structure will remain unchanged.
