Legal Battle Unfolds as Berkshire Hathaway Faces $10 Billion Accounting Lawsuit

Berkshire Hathaway, the conglomerate led by Warren Buffett, is embroiled in a legal dispute over its $10 billion acquisition of truck-stop-chain Pilot Travel Centers. An unsealed lawsuit alleges that Berkshire violated the terms of the acquisition by altering the accounting methods used to assess a significant part of the deal.

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Berkshire Hathaway, the conglomerate led by Warren Buffett, is embroiled in a legal dispute over its $10 billion acquisition of truck-stop-chain Pilot Travel Centers. An unsealed lawsuit alleges that Berkshire violated the terms of the acquisition by altering the accounting methods used to assess a significant part of the deal.

The original agreement saw Berkshire Hathaway purchase approximately 39% of Pilot Flying J, a truck-stop provider owned by the Haslam family, for $2.75 billion in 2017. The deal stipulated that Buffett would acquire a controlling stake by a set date. In January, Buffett paid $8.2 billion to secure an additional 41% share, resulting in an 80% ownership of the business.

As part of the deal, the Haslam family retained the option to sell their remaining 20% stake to Berkshire on January 1, 2024, using the same valuation methods applied to the prior purchases. However, they claim that Berkshire's financial team modified the accounting rules pertaining to the largest US truck-stop business, diminishing the value of the so-called put right.

Pilot Travel Centers has vehemently opposed Berkshire's shift to pushdown accounting rules. According to the complaint filed in the Delaware Chancery Court, these changes unfairly disadvantage Pilot while favoring Berkshire, as argued by the chain's legal representatives.

Debbie Bosanek, a spokesperson for Berkshire Hathaway, has not yet responded to requests for comments regarding the lawsuit.

The acquisition has proven lucrative for Berkshire, with Pilot Flying J contributing $9.5 billion in revenue and $83 million in net earnings in the first quarter of this year. Strong second-quarter earnings further boosted Berkshire's performance.

The Haslam family believes that the accounting alterations will significantly devalue the remaining 20% of the truck-stop company. They seek legal intervention to prevent Buffett from using these changes in violation of the acquisition agreement. However, the specific estimates of the potential value loss are redacted in the lawsuit.

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The Haslam family asserts that a majority of Berkshire's appointees, who now control the chain's board, have thwarted efforts to reverse the pushdown-accounting rules, and Buffett has refused to provide assurances regarding the valuation of the remaining 20%, akin to the earlier stakes.

Pilot Flying J, based in Knoxville, Tennessee, had been under the leadership of the Haslam family since 1996. Jimmy Haslam, the owner of the NFL's Cleveland Browns, has been at the helm of the team since 2012. The acquisition from Randy Lerner, son of billionaire credit-card magnate Al Lerner, marked a significant investment in the NFL franchise.

This legal battle underscores the complexities of high-stakes business acquisitions and their financial implications, raising questions about the integrity of accounting practices.