Warren Buffett gives away his
fortuneFORTUNE EXCLUSIVE:
The world's second richest man - who's now worth $44 billion -
tells editor-at-large Carol Loomis he will start giving away 85% of
his wealth in July - most of it to the Bill & Melinda Gates
Foundation.
By Carol J. Loomis, FORTUNE
editor-at-large
June 25, 2006: 1:42 PM EDT
NEW YORK (FORTUNE Magazine) - We were sitting in a Manhattan living
room on a spring afternoon, and Warren Buffett had a Cherry Coke in
his hand as usual. But this unremarkable scene was about to take a
surprising turn.
"Brace yourself," Buffett warned with a grin. He then described a
momentous change in his thinking. Within months, he said, he would
begin to give away his Berkshire Hathaway fortune, then and now
worth well over $40 billion.
This news was indeed stunning. Buffett, 75, has for decades said
his wealth would go to philanthropy but has just as steadily
indicated the handoff would be made at his death. Now he was
revising the timetable.
"I know what I want to do," he said, "and it makes sense to get
going." On that spring day his plan was uncertain in some of its
details; today it is essentially complete. And it is typical
Buffett: rational, original, breaking the mold of how extremely
rich people donate money.
Buffett has pledged to gradually give 85% of his Berkshire stock to
five foundations. A dominant five-sixths of the shares will go to
the world's largest philanthropic organization, the $30 billion
Bill & Melinda Gates Foundation, whose principals are close
friends of Buffett's (a connection that began in 1991, when a
mutual friend introduced Buffett and Bill Gates).
The Gateses credit Buffett, says Bill, with having "inspired" their
thinking about giving money back to society. Their foundation's
activities, internationally famous, are focused on world health --
fighting such diseases as malaria, HIV/AIDS, and tuberculosis --
and on improving U.S. libraries and high schools.
Up to now, the two Gateses have been the only trustees of their
foundation. But as his plan gets underway, Buffett will be joining
them. Bill Gates says he and his wife are "thrilled" by that and by
knowing that Buffett's money will allow the foundation to "both
deepen and accelerate" its work. "The generosity and trust Warren
has shown," Gates adds, "is incredible." Beginning in July and
continuing every year, Buffett will give a set, annually declining
number of Berkshire B shares - starting with 602,500 in 2006 and
then decreasing by 5% per year - to the five foundations. The gifts
to the Gates foundation will be made either by Buffett or through
his estate as long as at least one of the pair -- Bill, now 50, or
Melinda, 41 -- is active in it.
Berkshire's price on the date of each gift will determine its
dollar value. Were B shares, for example, to be $3,071 in July -
that was their close on June 23 - Buffett's 2006 gift to the
foundation, 500,000 shares, would be worth about $1.5 billion. With
so much new money to handle, the foundation will be given two years
to resize its operations. But it will then be required by the terms
of Buffett's gift to annually spend the dollar amount of his
contributions as well as those it is already making from its
existing assets. At the moment, $1.5 billion would roughly double
the foundation's yearly benefactions. But the $1.5 billion has
little relevance to the value of Buffett's future gifts, since
their amount will depend on the price of Berkshire's stock when
they are made. If the stock rises yearly, on average, by even a
modest amount - say, 6% - the gain will more than offset the annual
5% decline in the number of shares given. Under those
circumstances, the value of Buffett's contributions will
rise.
Buffett himself thinks that will happen. Or to state that
proposition more directly: He believes the price of Berkshire, and
with it the dollar size of the contributions, will trend upward -
perhaps over time increasing substantially. The other foundation
gifts that Buffett is making will also occur annually and start in
July. At Berkshire's current price, the combined 2006 total of
these gifts will be $315 million. The contributions will go to
foundations headed by Buffett's three children, Susan, Howard, and
Peter, and to the Susan Thompson Buffett Foundation.
This last foundation was for 40 years known simply as the Buffett
Foundation and was recently renamed in honor of Buffett's late
wife, Susie, who died in 2004, at 72, after a stroke. Her will
bestows about $2.5 billion on the foundation, to which her
husband's gifts will be added. The foundation has mainly focused on
reproductive health, family planning, and pro-choice causes, and on
preventing the spread of nuclear weapons. Counting the gifts to all
five foundations, Buffett will gradually but sharply reduce his
holdings of Berkshire (Charts) stock. He now owns close to 31% of
the company-worth nearly $44 billion in late June - and that
proportion will ultimately be cut to around 5%. Sticking to his
long-term intentions, Buffett says the residual 5%, worth about
$6.8 billion today, will in time go for philanthropy also, perhaps
in his lifetime and, if not, at his death.
Because the value of Buffett's gifts are tied to a future,
unknowable price of Berkshire, there is no way to put a total
dollar value on them. But the number of shares earmarked to be
given have a huge value today: $37 billion.
That alone would be the largest philanthropic gift in history. And
if Buffett is right in thinking that Berkshire's price will trend
upward, the eventual amount given could far exceed that
figure.
So that's the plan. What follows is a conversation in which Buffett
explains how he moved away from his original thinking and decided
to begin giving now. The questioner is yours truly, FORTUNE
editor-at-large Carol Loomis. I am a longtime friend of Buffett's,
a Berkshire Hathaway shareholder, and a director of the Susan
Thompson Buffett Foundation.
