Today I read an article about the dispute between Warren Buffett and the Haslam family over Berkshire Hathaway’s purchase of the Haslam family’s prize asset, Pilot Travel Centers. The dispute has led to a lawsuit. Pilot is a truck stop operator with over 860 locations operating under the Pilot Flying J and One9 Dealer brands.
Since 2017, Berkshire has gradually purchased 80% of Pilot for $11 billion. During an annual 60-day window, the Haslam family can opt to sell their 20% remaining stake to Berkshire. The contractually agreed-upon price would be 10 times the prior year’s earnings before interest and taxes (EBIT). Note that EBIT differs from EBITDA. EBITDA is earnings before interest, taxes, depreciation, and amortization.
The lawsuit centers on what financial reporting method should be used to calculate EBIT and thus determine the purchase price should the Haslams elect to sell the remaining 20%. The issue is pushdown accounting, a method that has an impact on the value of assets a company owns, which impacts the depreciation and amortization expenses, which impacts reported profitability (in this case, EBIT). The Wall Street Journal reported that the decision to use pushdown accounting can have as much as a $1.2 billion impact on the price Berkshire would pay for the remaining 20% of Pilot. I assume the Haslams want to use the method that determines a higher EBIT and Berkshire and Buffett want to use the method that determines a lower EBIT.
There’s more to this case that I won’t get into, but I find it interesting that this dispute isn’t about the company's operations. It’s about how the results of its operations are recorded in financial statements and how the method used could have a $1 billion-plus impact.
Accounting isn’t fun, but it’s the language of business. This case reinforces my thoughts about it being important for entrepreneurs to learn basic accounting concepts.