investors may soon get a read on one of the company’s better deals in the past decade—a 2017 purchase for nearly $3 billion of a 38.6% interest in Pilot Flying J, the country’s leading operator of truck stops.
The Berkshire Hathaway (ticker: BRK/A, BRK/B) stake in the company will rise to 80% in the current quarter under the terms of the original agreement reached by CEO Warren Buffett with the founding Haslam family, which will retain the remaining 20% stake.
The purchase price of 41.4% stake could be revealed in Berkshire’s 2022 10-K—in a section on corporate events after year end—or in Buffett’s annual shareholder letter. Both are due for release on Saturday, Feb. 25. The second installment could come at a price that is more than double the original one based on Pilot’s growth since 2017.
Pilot Flying J, now known as Pilot Co., runs more than 750 of what it calls travel centers around the country as well as a growing energy business. Pilot owns a fleet of tanker trucks, a natural-gas liquids business and it has a partnership with
(GM) to install 2,000 charging stations for electric vehicles at its truck stops. Pilot also is investing $1 billion to upgrade its truck stops.
Berkshire releases little financial information about Pilot. The company had sales of $45 billion in 2021, up from about $20 billion in 2017. Pilot is the country’s fifth largest private company ranked by revenues in 2022, Forbes has estimated.
Buffett wrote enthusiastically in his 2017 annual letter about the company and followed that up with a comment in the 2020 letter that Pilot’s pretax earnings topped $1 billion.
“‘Big Jim’ Haslam started what became Pilot Travel Centers in 1958 by purchasing a service station for $6,000,” Buffett wrote. Haslam then “brought into the business a son with the same passion, values and brains as his father. Sometimes there is a magic to genes.” Both the elder Haslam and Buffett are 92.
The son, Jimmy Haslam, has since ceded the CEO role to Shameek Konar, an energy expert who came on as chief strategy officer in 2017 and led Pilot’s expansion in the energy area. Haslam remains chairman. Konar had been co-head of
‘ principal investments in commodities from 2009 to 2012.
Berkshire has offered some clues to what it may pay for the 41.4% stake. In its 2021 10-K, it said: “If we had acquired the additional interest in Pilot and all outstanding noncontrolling interests as of Dec. 31, 2021, we estimate the aggregate cost of these acquisitions would approximate $11 billion.” This refers to Pilot and to such other Berkshire businesses like Electric Transmission of Texas.
It isn’t clear whether Berkshire referred there to its purchase of the 41.4% stake in Pilot or the larger 61.4% interest that it doesn’t own. Pilot likely accounts for the vast bulk of that $11 billion, which suggests the purchase price for the 41.4% stake could be around $7 billion. If Berkshire pays $7 billion for the 41.4% interest, it would value Pilot at about $17 billion.
Berkshire has said the price for the 41.4% will be “based upon Pilot’s adjusted earnings in 2022 and its net debt at Dec. 31, 2022.”
Berkshire doesn’t disclose Pilot’s earnings in its financial statements. They are lumped in with other Berkshire businesses in which the company holds a 20%-plus stake and uses the equity method of accounting. The largest has been Berkshire’s 26% equity stake in
(KHC) and will include its 21% interest in
(OXY) starting in the fourth quarter of 2022.
The non-Kraft investments had nearly $500 million of net income in the first nine months of 2022 that were attributable to Berkshire. The company said that Pilot’s profits were up in that period relative to the same span in 2021.
Edward Jones analyst James Shanahan says that like other private companies, Pilot may be making heavy investments that enhance its business but depress taxable income. “Pilot may want to shield itself from taxes by investing in the business. It probably could be a lot more profitable if it wanted to be,” he says.
Pilot is just the kind of company Buffett likes. It has a simple business with a strong market position that is investing to widen its competitive position and build related operations.
“When driving on the Interstate, drop in. PFJ sells gasoline as well as diesel fuel, and the food is good. If it’s been a long day, remember, too, that our properties have 5,200 showers,” Buffett wrote shareholders in his 2017 letter.
Write to Andrew Bary at [email protected]