OMAHA — Berkshire Hathaway Inc., the company controlled by billionaire investor Warren Buffett, said Friday that it will buy the shares of insurer Geico Corp. it does not already own for $70 a share, or about $2.3 billion.
The move may solve two issues for the Omaha-based company.
Berkshire is ready to reap more than $2 billion on its 13% stake in Capital Cities/ABC Inc., which Walt Disney Co. said three weeks ago that it would buy for $19 billion. Some of Berkshire Hathaway's proceeds will be in cash, which it will probably reinvest.
Analysts also speculated that Buffett, who turns 65 next week, may be grooming a successor in Geico co-Chief Executive Louis Simpson.
"Berkshire has a lot more money now, and Geico is a pretty good investment with the positive trends in auto insurance," said Ira Zuckerman, an analyst at SBS Financial Group Inc.
Geico has recently refocused on the increasingly profitable auto insurance business, bypassing sales agents in favor of phone sales, which saves as much as 15% on commissions.
For Buffett, the Geico move marks a return to his investing roots, expanding a stake he took in 1951 at age 20 when he put 70% of his net worth into the insurer. Today, according to Forbes magazine, Buffett ranks as the nation's second-richest person, and his strategies are imitated by investors around the world.
The transaction must be approved by state insurance regulators and holders of 80% of Geico's stock, of which Berkshire Hathaway already owns 51%. Both boards have already approved the move, which is expected to be completed in January.
Geico shares rose $12.875 to $68.625 on the New York Stock Exchange. Berkshire Hathaway shares rose $600 to $25,400, also on the NYSE.
Tony Russ, an analyst with Shelby Cullom Davis in New York, said a key aspect of the transaction is Buffett's plan to leave in place Geico's co-Chief Executives Olza (Tony) Nicely, 52, and Simpson, 58.
"I think one of the things Berkshire may be buying is succession for Warren Buffett," Russ said. "Lou Simpson has been a friend of Buffett for a long time."
The Geico acquisition may represent a change at Berkshire as Buffett prepares for the next 10 years. Besides full ownership of Geico, Berkshire will have a 3% stake in Disney after the Capital Cities/ABC sale.
A key attraction for Buffett is Geico's stake in the auto insurance business. Insuring drivers and cars has become more profitable as claims have dropped. That trend is a result of more stringent laws against drunk driving, aging baby boomers who are relatively safe drivers, and the greater number of built-in safety features on cars.