Berkshire Issues B Shares That Even Its Owners Are Reluctant to Buy
Berkshire Hathaway's A shares have not been split to date, with each share priced at approximately $758,000. In 1996, the company issued cheaper B shares, stating in the prospectus that Warren Buffett and Charlie Munger would not buy them and did not recommend that friends and family buy them either.
At that time, A shares were priced at about $33,400, and two unrelated investment trusts planned to buy A shares and then split them into hundreds or a thousand dollars each for resale, charging sales commissions, valuation fees, and operating expenses. Berkshire does not pay dividends, so the trusts needed to regularly sell shares to cover expenses. After attempts to halt this were unsuccessful, some proposals were still submitted to the U.S. Securities and Exchange Commission.
The company then created a cheaper version: each B share corresponds to one-thirtieth of the rights of an A share, priced at $1,110, allowing ordinary investors to purchase directly. The underwriting commission was reduced to about 1.5%, and shares were supplied in full according to confirmed demand, leaving no room for speculative trading. B shares cannot be converted back into A shares, and voting rights are one two-hundredth of those of A shares.
The prospectus stated in capital letters: A shares are not undervalued at the then-current market price, past growth rates of book value cannot be extrapolated, and the increase in market price has exceeded the growth rate of intrinsic value; purchases should only be made by those intending to hold for many years. The issuance was described as "choosing the lesser of two evils" to block trusts that charge fees under the Buffett label.
Ultimately, a total of 517,500 B shares were issued, including an over-allotment, raising a net of $565 million. The number of shareholders nearly doubled, while the voting structure changed very little. The company did not need this money at the time but used its low-priced channel to capture the middle-tier business.
In market mechanics, the buyers are long-term funds that still want to hold Berkshire but cannot afford a full A share, while the sellers are unit trusts preparing to collect that layer of fees. The event was driven by "low-priced follow-on" products, with funds flowing directly from the fee-splitting to the company's direct issuance; benefiting old shareholders as the intrinsic value per share was not inflated by trust purchases, while the channel merchants relying on commissions and operating fees were under pressure.
Source: Public Information
ABAB AI Insight
B shares are not a friendly marketing strategy, but a weapon against intermediaries. Wall Street wants to sell the "affordable Buffett," but what it really sells is the service fee. Buffett does not allow fixed capital to be indiscriminately absorbed by trusts and then add another layer of costs, so he made the entry cheaper and wrote warnings on the cover. The owner not buying is to tell the market: this is not a discounted product, but a shield.
The capital path is an active issuance to replace a layer of parasitic demand. $565 million goes into the company's treasury, not into the trust's management fees. Commissions were reduced to an unusually low level for the industry, and the issuance volume was opened according to demand, cutting off the new share scarcity premium. Money flows directly from retail investors wanting to buy Berkshire into Berkshire, leaving intermediary accounts without a reason to exist.
The benchmark is later various "star manager replicas" trusts, high-premium closed-end funds, and products that package indices into themes and charge fees again. The holding company is at a stage where "fame becomes a sellable label": not splitting A shares to preserve the structure of old shareholders, issuing B shares only to block the bypass. The 2010 B share split was a convenience issue, not the channel battle of 1996.
Structurally, this represents a transfer of pricing power. The mechanism is: when investors buy a name rather than a share, the pricing power falls to the intermediaries who can print the name on the packaging. Whoever makes the packaging cheaper and states "don't buy" pulls the pricing power back to the issuer. Where the fee layer disappears is where shareholder interests begin to align.
ABAB News · Law of Cognition
New shares that the owner is unwilling to buy are sometimes to block intermediary fees.
Once fame can be packaged, the channel will come to charge fees.
The real low-price entry often first dismantles the sales motivation.