February 26, 2024

Pilot’s drop in profits led to lower valuation in final Berkshire purchase


The final tranche of Pilot Travel Centers purchased by Berkshire Hathaway appears to have put the enterprise value of the travel center chain significantly lower than it was just a year earlier.

In the company’s 10-K report filed with the Securities and Exchange Commission over the weekend, Berkshire Hathaway revealed that it had paid $2.6 billion for the final 20% of Pilot it did not already own. That would give Pilot an enterprise value of $13 billion.

But in the first quarter of 2023, Berkshire Hathaway paid $8.2 billion for a 41.4% stake in Pilot. That equates to an enterprise value of approximately $19.8 billion. 

With the acquisition price earlier this year set as a multiple of earnings before interest and taxes, the data in the 10-K on Pilot’s performance suggests a weaker 2023 is the reason for the decline in the enterprise value paid for the final fifth compared to where it was a year earlier.

Pilot, having been a private company, did not need to publicly release financial data previously. But it does so now as a subsidiary of publicly traded Berkshire.

While some of the 22% decline in 2023 revenue at Pilot from a year earlier can be attributed to lower diesel prices, with revenue dropping to $56.8 billion from $72.7 billion in 2022, pretax earnings at Pilot suffered a bigger decline, a drop of 54.7% to just over $1 billion from $2.33 billion a year earlier.

In its relatively brief comments about Pilot’s operations, Berkshire Hathaway management in the 10-K said Pilot last year sold about 16.2 billion gallons of diesel, gasoline and other fuel-related products in 2023. That was down from 18.4 billion gallons a year earlier.

The decline was not primarily a function of a drop in sales at the pump, Berkshire said, but “predominantly” in the wholesale fuel and fuel marketing businesses of Pilot.”

In filings last year and then repeated in this year’s 10-K, Berkshire Hathaway said it had changed the accounting of its stake in Pilot before it had control from the equity method of accounting to a standard known as “fair value.”

As a result of that change, Berkshire Hathaway took a one-time noncash gain of $3 billion, as the fair value method put the value of Pilot in excess of the equity method.

The accounting changes had a significant impact on depreciation and amortization. Moving to acquisition accounting from equity accounting was a major cause of depreciation and amortization costs rising to $832 million last year from $436 million a year earlier, according to the 10-K.

Additionally, interest costs nearly doubled, increasing $213 million, up to $437 million from $224 million.

The early 2023 purchase of a 41.4% stake in Pilot gave Berkshire Hathaway controlling interest when combined with the 38.6% share in Pilot that the conglomerate first acquired in 2017. That 2017 purchase for $2.76 billion gave Pilot an enterprise value of about $7.1 billion.

Berkshire had not responded by publication time to a phone message about the difference in valuations.

Berkshire and the Haslam family, which sold Pilot to Berkshire, squared off in the latter part of 2023 and into 2024 over the valuation of the final 20% before finally settling lawsuits against each other just before the dispute was to go to trial in January in Delaware Chancery Court.

The suit between the two sides began with the Haslam family criticizing changes in Berkshire’s accounting of its stake in Pilot after the 41.4% acquisition gave it controlling interest in Pilot.

Berkshire implemented what the Haslams called the “pushdown” method for valuing its stake in Pilot. The founding family of Pilot was concerned that the practice was different from the formula the two sides had agreed upon for valuing that final 20%, which was to be a multiple of EBIT. The dispute ultimately was settled before the case went to trial, and the sale of the final stake in Pilot to Berkshire went ahead. 

The two sides never said whether there were any changes in the formula between the 2023 acquisition of 41.4% and the 20% acquisition in early 2024 as a result of the settlement.

In the 10-K, Berkshire Hathaway said “the redemption price was to be based on a multiple of PTC’s earnings for the preceding year, with specific other adjustments, including the amount of PTC’s net debt.” 

In its lawsuit, Pilot founder James Haslam said he had been told by Berkshire Hathaway CEO Warren Buffet that the 20% would be valued under provisions earlier agreed upon, though the Haslams were concerned that the pushdown accounting would hurt the valuation of Pilot as a multiple of EBIT.

In the brief summation of the Haslams vs. Berkshire lawsuits, all the Berkshire 10-K said was that “all litigation between Pilot Corp (the Haslams) and Berkshire was settled in January 2024.”

More articles by John Kingston

1st peek at Pilot’s finances after Berkshire Hathaway ownership grows

Truck stops in flux: Pilot CEO switch, TA sale cleared

Debt ratings review: Pilot remains strong operator


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