A $570 Million Investment in POSCO by Warren Buffett

Berkshire Hathaway, an investment firm owned by Warren Buffett, published its annual report for 2006 on its website yesterday. The report said that the company owned 3,486,006 shares, or 4.0 percent of POSCO stock, as of late last year.

Investing a total of $572 million in POSCO’s stock, the company posted $735 million in gains.

It is unclear when the firm purchased the shares, but the securities industry believes that it bought most of the shares in 2002 and 2003 when the average purchase price was about 150,000 won.

Buffet’s ownership of POSCO’s stake was published because the aggregate value of the single stock owned by the investment firm hit $700 million. The company did not have to disclose its ownership stake when its investment stood at $572 million. But as the price of POSCO’s shares rose, the company disclosed the investment information according to the company’s internal regulations.

Financial and industrial circles have mixed views over whether the massive purchase of POSCO’s stock by Buffet was a “simple investment” or an action to “participate in management.”

With foreign ownership reaching 62.29 percent (as of late last year), POSCO has been mentioned as a possible subject of a hostile merger and acquisition. As its price on book-value ratio (PBR) is undervalued at 1.2, corporate raiders have been paying keen attention to the steel company.

Indeed, when U.S. corporate raider Carl Icahn increased his stake in KT&G last year, attempting to gain control of the Korean corporation, the financial community said POSCO would be the next target.

However, considering the investment style of Buffet, financial experts say, there is a slim chance that he would attempt to gain control of POSCO’s management.

Buffet is known as a value investor who gains profits by owning shares of undervalued companies with healthy financial structures. He has never been the kind of investor who purchases shares en masse, raising company value through a hostile merger and acquisition in collaboration with other investors just to sell the shares.

Lee Chae-won, managing director at Korea Value Asset Management, said, “Buffet has mainly invested in dominant stocks in the food and beverage industry, rather than market-sensitive stocks, including steel stocks,” adding, “Although the investment in POSCO is an exception to his investment style, there will be no additional purchases as the share price has more than doubled since when he bought the shares.”

POSCO’s share price was going down yesterday but went up again at the news, closing at 364,000 won, a 3.12-percent increase from the previous day.

changkim@donga.com larosa@donga.com