In a recent development, Warren Buffett's Berkshire Hathaway is under investigation for alleged violations in the acquisition of truck-stop company Pilot Travel Centers. The accusations stem from modifications made to the accounting methodology used to assess part of the deal, according to an unsealed complaint.
In 2017, Berkshire paid $2.75 billion for a 39% stake in Pilot Flying J, a well-known provider of truck stops owned by the Haslam family. The agreement mandated that Buffett acquire full ownership by this year. Subsequently, in January, Buffett purchased an additional 41% interest for $8.2 billion, solidifying an 80% ownership stake in the corporation.
The contract also grants the Haslam family the option to sell the remaining 20% of the company to Berkshire on January 1, 2024, using the same valuation methodologies applied in the earlier transactions. However, the family contends that Buffett's team altered the accounting procedures for the prominent U.S. truck-stop business, thereby diminishing the value of the put-right.
The complaint, which was filed in the Delaware Chancery Court and was recently made public, says that Pilot has always been against Berkshire's pushdown accounting rules, saying that they unfairly help Berkshire and hurt Pilot.
Berkshire Hathaway’s representative has not yet responded to requests for comment regarding Pilot's lawsuit.
In the first quarter, Berkshire reported $9.5 billion in revenue and $83 million in net profitability from the 750 outlets within the Flying J chain. Following robust second-quarter results, the conglomerate's Class B shares surged by 3.6% to reach $362.58, marking an all-time high.
The Haslam family contends that the accounting modification could lead to a significant devaluation of the remaining 20% stake in the truck-stop company. They seek intervention from a Delaware judge to prevent Buffett from implementing the altered methodology, citing a breach of the acquisition agreement. However, specific estimates of the perceived value loss are omitted from the claim.
The Haslams further assert that a majority of Berkshire's appointees on the chain's board have thwarted attempts to eliminate pushdown-accounting requirements. Additionally, Buffett has reportedly declined to provide assurance that the remaining 20% will be valued in a manner consistent with the earlier transactions.
Since 1996, Jimmy Haslam, brother of former Tennessee Governor Bill Haslam, has overseen Pilot Flying J in Knoxville. In 2012, he assumed control of the Cleveland Browns, purchasing the franchise from Randy Lerner for nearly $1 billion.
As legal proceedings unfold, the outcome of this dispute could have significant implications for Berkshire Hathaway and the Haslam family, potentially reshaping the ownership structure of Pilot Travel Centers.