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May 19 (Bloomberg) -- Warren Buffett’s Berkshire Hathaway Inc., the largest shareholder in Kraft Foods Inc. and Coca-Cola Co., is scaling back stock purchases after the firm’s cash holdings fell to their lowest in more than five years.
Berkshire is spending less as the firm comes closer to the $10 billion that Buffett says is the minimum he wants on hand to protect against calamity. The cash hoard, which had been at $47.1 billion in September 2007, fell below $20 billion in April after the company posted its worst loss in at least 20 years and Buffett directed funds to corporate debt and preferred stock.
Buffett is instead locking in returns of 10 percent or more by investing in preferred shares of Goldman Sachs Group Inc. and General Electric Co. and buying similar securities sold by Swiss Reinsurance Co. He’s also purchased debt in companies including candy manufacturer Mars Inc. and wallboard maker USG Corp. Such deals since September collectively pay interest of more than $1.8 billion annually.
Berkshire had almost $20 billion in cash after buying preferred shares in Dow Chemical Co. in April to help the company acquire Rohm & Haas Co., Buffett said this month.
Derivative linked to equity markets weighed on Berkshire’s results last year. The contracts commit Berkshire to pay out on dates beginning in 2019 if specified stock indexes in U.S., Asia and Europe are lower than they were when the bets were made. Buffett, 78, sold some of the derivatives near the market’s peak in 2006 and 2007, and liabilities on the contracts widened to $10.2 billion as of March 31.
To contact the reporter on this story: Erik Holm in New York at eholm2@bloomberg.net.Related -Warren Buffett holdings for the end of Q1-2009 Holdings
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