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Wednesday, October 11, 2006

Berkshire Hathaway Increases Stake in USG

From Gannon On Investing

On Friday, Warren Buffett's Berkshire Hathaway (BRK.B) disclosed a 19% stake in USG (USG). National Indemnity, a subsidiary of Berkshire, acquired nearly 1.13 million shares at prices of $45.90 to $46.10. The total cost of these purchases was approximately $51.2 million.

From the amended 13D:

From August 23, 2006 through October 4, 2006, (National Indemnity) acquired 1,112,900 shares of USG Common Stock through open market purchases. The dates and prices at which those shares were purchased are as follows:
8/23 – 734,700 shares @ $45.90

8/24 – 7,000 shares @ $46.03

10/04 – 371,000 shares @ $46.10

As disclosed in Friday's filing, Berkshire owns over 17 million shares of USG. At the time this post was written, Berkshire's (disclosed) stake had a market value of about $854.8 million.

The Making of Berkshire's Stake

On June 30, shares of USG traded at $72.93 (they had traded as high as $121.70 some months earlier). By July 11, the share price had fallen to $49.18. Since that time, the stock price has rarely stayed above $50 per share for any real length of time. This prolonged period of stock price inactivity let Berkshire greatly increase its stake in the company.

As of June 30, Berkshire held just 6.5 million shares of USG. Today, Berkshire owns more than 17 million shares of USG.

Berkshire already held 6.5 million shares of USG as early as November of 2000. That initial stake cost Berkshire approximately $16.90 per share.

However, the majority of Berkshire's position in USG was bought within the last three or four months. So, the cost of Berkshire's stake is now considerably higher.

Weakness in the U.S. housing market is the generally accepted explanation for the sharp decline in USG's stock price during the second and third quarters of 2006. USG has considerable exposure to the housing market. In fact, "Sheetrock" is actually a USG brand name.

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