Warren Buffett's Berkshire Hathaway is embroiled in a legal dispute with billionaire Jimmy Haslam and his family, the owners of a substantial stake in Pilot Travel Centers. The conflict, playing out in the Delaware Chancery Court, centers on the valuation of Pilot, a truck stop operator, and the interpretation of a buyback agreement.
The Disagreement Over Valuation
The disagreement arose when the Haslam family attempted to exercise a buyback option based on a valuation formula that Berkshire Hathaway argues undervalues Pilot. Berkshire's lawsuit is a counteraction to a suit filed earlier by the Haslams, who are seeking to enforce the buyback at a lower valuation. The crux of the disagreement is the interpretation of the buyback agreement and the valuation formula it contains.
Accusations and Counterclaims
In a complaint last month, the Haslams accused Berkshire of altering its accounting for Pilot to depress the business's profits. These profits are key in setting the price Berkshire would owe if the Haslam family exercised a put option to sell their 20% stake early next year. Berkshire's countersuit seeks an injunction blocking the Haslams from exercising their option in 2024 or distorting Pilot's results through unauthorized payments to employees.
Implications and Potential Outcomes
This legal battle underscores the complexities of corporate buyback agreements and the potential for conflicts when stakeholders hold differing views on a company's worth. As the case unfolds, the outcome will likely depend on the specific language of the contract and the court's interpretation of the parties' intentions. Berkshire Hathaway, which paid $11 billion for its 80% stake in Pilot in 2017 and early 2023, estimates that the remaining 20% would be worth $3.2 billion without the accounting change.