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One of Warren Buffett’s favoured lieutenants, who was seen as his leading heir apparent, resigned after buying shares in a company he then repeatedly pushed Buffett to acquire.
The resignation of David Sokol from his roles as chairman of Berkshire Hathaway Inc. (BRK.A-N) units MidAmerican Energy and NetJets is a reputational blow for Buffett, the 80-year-old “Oracle of Omaha” who recently sealed a $9 billion US deal for Lubrizol Corp.
“Especially in a situation like this, the brand is everything. Often, when you violate that brand for any reason whatsoever, your goose is cooked,” said William Larkin, fixed income portfolio manager at Cabot Money Management. “I have not ever heard of something like that coming from Berkshire.”
Buffett said on Wednesday that Sokol bought shares of Lubrizol (LZ-N) last December, sold them, then bought more shares in early January. He subsequently presented Buffett with the idea of buying the company.
Buffett said he was originally not in favour of the idea but warmed to it after Sokol told him of a conversation with Lubrizol’s chief executive. Berkshire ultimately announced its purchase of Lubrizol for $135 US per share, a 28-percent premium, on March 14.
In his annual letter to shareholders this year, Buffett praised Sokol for engineering a turnaround at NetJets, a business where he had no prior experience, and for his accomplishments at MidAmerican.
A year earlier, he called Sokol “an enormously talented builder and operator,” and in 2009 he proclaimed that Sokol would run any business with which he was associated “in a first-class manner.”
Most Buffett watchers thought Sokol was the top candidate of the three or four Berkshire executives most frequently mentioned as potential future CEOs of the company, given the legendary investor’s enthusiasm for him.
Buffett said on Wednesday that he did not feel Sokol’s purchases were unlawful.
Berkshire did not release Sokol’s March 28 letter of resignation, though Buffett said that in the letter Sokol had mentioned his desire to pursue philanthropic efforts.