Berkshire Cuts Stakes in Johnson and Johnson and Proctor Gamble

Berkshire Hathaway Inc. cut stakes in Johnson & Johnson, the world’s largest maker of health-care products, and Procter & Gamble Co., the No. 1 consumer-products company, as Chairman Warren Buffett raised cash for the biggest acquisition of his career.

Buffett’s company sold 26 percent of its stake in Johnson & Johnson, 9 percent of its Procter & Gamble, and 34 percent of oil producer ConocoPhillips, the Omaha, Nebraska-based company said yesterday in a regulatory filing. The stocks were the same ones Buffett sold a year earlier to fund investments in Goldman Sachs Group Inc. and General Electric Co. at the height of the credit crisis in 2008.

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Buffett later told shareholders he “very much liked” the Goldman Sachs and GE investments, while confessing he “would have preferred to keep” the stocks as well. This time, Berkshire raised cash as it prepared for the $27 billion buyout of Burlington Northern Santa Fe Corp. Buffett also issued equity and sold $8 billion of debt in support of the railroad deal.

“It is basically raising extra liquidity for Burlington Northern,” said Glenn Tongue, a partner at T2 Partners LLC, which owns Berkshire shares. Buffett “always said he was willing to sell stocks to buy whole businesses.”

Exxon Mobil

Berkshire also disclosed reduced stakes in Exxon Mobil Corp., SunTrust Banks Inc., Ingersoll-Rand Plc, UnitedHealth Group Inc., WellPoint Inc., Gannett Co. and CarMax Inc. Buffett also lowered the holding of Moody’s Corp. Buffett previously had to disclose the reduction in shares of the ratings firm because of the size of Berkshire’s stake, which is about 13 percent.

Buffett’s company now holds 27.1 million shares of Johnson & Johnson, reducing its stake below 1 percent of the New Brunswick, New Jersey-based company’s outstanding stock. The holding of Cincinnati-based Procter & Gamble fell to 87.5 million, making Berkshire the fourth-largest shareholder with 3 percent of the stock, according to Bloomberg data.

Berkshire’s quarterly disclosure of its $57.9 billion U.S. portfolio is studied by mutual funds and individuals looking for clues about Buffett’s investment strategy. Buffett, the second- richest American, makes most of the investment decisions, while Lou Simpson manages the portfolio for car insurance unit Geico Corp. Berkshire is the largest shareholder of Coca-Cola Co., American Express Co. and Wells Fargo & Co.

Berkshire yesterday revealed an increased stake in Wells Fargo, Wal-Mart Stores Inc., Becton Dickinson & Co., Iron Mountain Inc. and Republic Services Inc. It listed about 320 million shares of San Francisco-based Wells Fargo at year-end, a 2.1 percent increase from three months earlier.

‘More Leveraged’

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“He’s buying companies that are more leveraged to the economy by going into Wells Fargo and selling names like J&J and Procter & Gamble,” said Michael Yoshikami, chief investment strategist at Berkshire shareholder YCMNet Advisors. While the stock sales were tied to the Burlington deal, “there’s a rejiggering of the portfolio” away from stocks that do well when the economy is in recession, he said.

Wells Fargo, the biggest bank on the U.S. West Coast, has more than tripled from lows in March. Buffett has said he told students that month that if he had to put all his net worth into one stock, Wells Fargo “would be the stock.” His firm also increased its stake in the bank in the first and third quarters of 2009, and now owns 6.2 percent of the company.

The ConocoPhillips sale was its fifth consecutive decrease, leaving Berkshire with shares valued at $1.88 billion based on yesterday’s closing price. Buffett called the investment in the Houston-based oil company a “major mistake” after buying shares with oil prices near their peak in 2008. The Exxon Mobil stake fell by 67 percent to 421,800 shares and is valued at $28 million.

Health-Care Stocks

Berkshire reduced holdings in Minnetonka, Minnesota-based UnitedHealth, the biggest U.S. health insurer by revenue, by 65 percent, and cut Indianapolis-based rival WellPoint by 60 percent as the U.S. Congress debated health-care reform in the last three months of 2009. The UnitedHealth stake is valued at $37.2 million based on yesterday’s closing price, while the WellPoint stock is valued at $78.6 million.

“These stocks had become quite cheap during the height of health-care reform and they’ve gone up a tremendous amount,” said Steven Shubitz, an analyst with Edward Jones & Co. in Des Peres, Missouri. “The reality now is that we again have a period of uncertainty, since we don’t have any imminent health- care reform, and now we’re just in a waiting situation to see if health-care reform really is dead.”

Confidentiality

Buffett, 79, built Berkshire into a $180 billion company through takeovers and the purchase of stock in companies he believes have lasting competitive advantages and superior management. He built a stake of more than 20 percent in Burlington Northern over two years before announcing a buyout of the Forth Worth, Texas-based railroad in November. Berkshire completed the deal last week.

The filing omits information about some transactions because Buffett is permitted to keep them confidential for now. The U.S. Securities and Exchange Commission sometimes allows companies to withhold data from the public to limit copycat investing while a firm is building or cutting a position. Buffett didn’t respond to a request for comment sent to an assistant after normal business hours yesterday.

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