March 26, 2018 / 9:36 PM / a year ago

Buffett's Berkshire charts distinctive course in USG sale talks

March 26 (Reuters) - Warren Buffett's Berkshire Hathaway Inc promises its shareholders that it "will not engage in unfriendly takeovers."

But when it comes to cashing out of an investment, Berkshire showed a willingness on Monday to do business with a bidder that will not take no for answer.

As building products company USG Corp was rejecting a $42 per share, or $5.9 billion, takeover approach from Germany's Gebr Knauf KG, Berkshire disclosed it had offered to sell Knauf its 30.8 percent stake in USG for the same per share price, or more.

The proposal by Berkshire, USG's largest shareholder, to Knauf, its second largest, was unusual, structured as a six-month option contingent on Knauf buying the rest of USG.

Knauf would pay a $2 per share upfront fee, or $86.8 million, which Berkshire would keep if the six months expired without a merger.

The option's exercise price would equal Knauf's eventual bid for USG, less $2 per share. Knauf said it was considering the proposal.

"Berkshire has so much leverage, because of its USG stake, that it will extract whatever additional value it can get," said Michael Yoshikami, who oversees $2.3 billion at Destination Wealth Management in Walnut Creek, California and owns Berkshire stock.

"The message here is Berkshire is not desperate to make a deal with Knauf," he added.

Buffett's office was not immediately available for comment.

Buffett is known for using Berkshire's size and reputation to win friendly terms for shareholders.

That is particularly important now, as the Omaha, Nebraska-based conglomerate labors under $116 billion of cash and equivalents.

During the 2008 global financial crisis, Buffett became a "lender of last resort" to such companies as USG, Dow Chemical Co, General Electric Co, Goldman Sachs Group Inc and Harley-Davidson Inc.

Berkshire has owned USG since 2000, held on through its bankruptcy, and in 2008 joined Canada's Fairfax Financial Holdings Ltd in buying USG convertible debt yielding 10 percent. By 2014, Berkshire had swapped its USG debt into stock.

Buffett said at Berkshire's annual meeting last year that USG was "not one of my great ideas," but "no disaster."

Selling USG for the right price would be consistent with Buffett's preference to own whole companies rather than stocks.

Buffett did this in February 2016, when Berkshire swapped Procter & Gamble Co stock for the Duracell battery business and $1.8 billion of cash.

Berkshire's bigger holdings include the BNSF railroad and Geico car insurance, but it also owns several housing- and construction-related companies such as Acme Brick, Benjamin Moore paint, Clayton mobile homes and Shaw carpeting.

Buffett told shareholders in his Feb. 24 annual letter he wanted to find "one or more huge acquisitions" to whittle down Berkshire's cash hoard. (Reporting by Jonathan Stempel in New York Editing by Greg Roumeliotis and Tom Brown)

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