Berkshire Hathaway Buying 38.6% Stake in Pilot Flying J -- Update

By Nicole Friedman Features Dow Jones Newswires

Warren Buffett's Berkshire Hathaway Inc. on Tuesday made a bet on American truckers with a deal to acquire nearly 40% of the operator of Pilot and Flying J travel centers.

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The Knoxville, Tenn.-based family-owned Pilot Travel Centers LLC, better known as Pilot Flying J, has 750 locations in the U.S. and Canada where truckers and drivers refuel, eat and shop. The company said it generates more than $20 billion in annual revenue.

Berkshire didn't disclose how much it paid for its initial 38.6% equity stake in Pilot, one of the largest private companies in the U.S. The Haslam family will hold a 50.1% stake in the company after the deal closes, and FJ Management Inc., owned by the Maggelet family, will hold an 11.3% stake, according to a press release.

In 2023, Berkshire plans to buy an additional 41.4% stake, and the Haslam family will retain 20%.

The investment is Berkshire's latest bet on traditional forms of transportation and U.S. economic growth. Mr. Buffett already owns BNSF Railway, auto-dealership group Berkshire Hathaway Automotive, car insurer Geico and private-jet company NetJets.

"There will be more goods moving to more people as the years go by in the United States -- that I would bet a lot of money on," Mr. Buffett, Berkshire's chairman and chief executive, said in an interview.

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The deal runs counter to the massive projected growth in electric vehicles and self-driving cars and trucks expected by some analysts. Belief in those businesses has helped Elon Musk's Tesla Inc., for example, post a more than 60% stock-price jump in the past year.

Jimmy Haslam, Pilot's chief executive, said in an interview that both trends still have a long way to go before becoming mainstream and disrupting the truck business.

"We personally believe -- and we spend a lot of time talking to both truck and car manufacturers -- that it will be a long time before there's not a person in the truck," Mr. Haslam said. "I think diesel fuel will power trucks for a long time to come, and there will be a person in that truck for a long time to come."

Even so, a fall in crude oil prices has hit Pilot in recent years. Revenue at the company is down from about $30.8 billion in 2012, as lower crude-oil prices have led to lower prices for diesel and other fuels that Pilot sells, according to the company.

The acquisition fits into Berkshire's typical strategy of buying family-owned businesses and leaving the management teams and headquarters in place. Mr. Buffett has done multistep acquisitions like this before, including with Marmon Group in 2007.

In the transportation space, Mr. Buffett's biggest deal was for BNSF in 2009. The company also is heavily invested in industrial manufacturers and consumer brands that rely on transportation networks to deliver their products including Kraft Heinz Co. and Fruit of the Loom.

Mr. Buffett was introduced to Mr. Haslam in May by Byron Trott, whose firm BDT Capital Partners LLC owned a stake in Pilot, Mr. Haslam said. Berkshire is an investor in BDT, Mr. Buffett said. BDT exited the Pilot stake as part of Tuesday's deal.

"We weren't actively looking for a partner," said Mr. Haslam, 63 years old. But "the more we talked, the more we felt it made sense." Pilot has made several acquisitions in recent years and plans to continue expanding, he said.

Mr. Haslam's father founded the company and remains chairman. Three third-generation family members work at the company, Mr. Haslam said.

Mr. Haslam's brother, Bill, was elected governor of Tennessee in 2010. Jimmy Haslam and his wife own the Cleveland Browns football team.

Pilot Flying J was shaken by a scandal beginning in 2013 when Pilot staff members were accused of defrauding trucking-company customers that bought diesel at its truck stops by shorting rebate money Pilot owed them. Pilot later accepted responsibility and settled with the federal government for $92 million.

Mr. Haslam said the company had resolved the issue.

Berkshire held nearly $100 billion in cash as of June 30, a record high, and Mr. Buffett has been looking for ways to spend it. Two recent deal efforts fell through. Kraft Heinz earlier this year dropped a $143 billion offer, which would have been partly backed by Berkshire, for Unilever PLC. And Berkshire's utility arm struck a deal in July to buy Texas power-transmission company Oncor, but the deal was terminated in favor of a higher offer from Sempra Energy.

Cara Lombardo contributed to this article

Write to Nicole Friedman at nicole.friedman@wsj.com

(END) Dow Jones Newswires

October 03, 2017 12:08 ET (16:08 GMT)