Buffett says his successor will need to focus on new deals for profit growth

OMAHA, Neb. — Big purchases will be needed to improve Berkshire Hathaway Inc.'s earnings in future years, chairman Warren Buffett wrote in his annual letter to shareholders.

But whenever Buffett's successor takes over the Omaha-based investment company, finding those major acquisitions to fuel Berkshire's growth is likely to become more difficult — especially in the first few years.

Buffett sparked speculation about his successor by writing that the company board had unanimously decided who should succeed Buffett. Buffett called 2005 a "decent year" for Berkshire as the company's net earnings grew nearly 17 percent to $8.528 billion.

"Over the years, our current businesses, in aggregate, should deliver modest growth in operating earnings," Buffett wrote in the letter, released Saturday. "But they will not in themselves produce truly satisfactory gains. We will need major acquisitions to get that job done."

Steve Kaplan, a University of Chicago professor of finance and expert in corporate governance, said people bring deals to Buffett now because of who he is and that won't happen with a new CEO.

"The reason people are willing to sell to Berkshire Hathaway is because of Buffett, not because it's Berkshire," Kaplan said.

Just consider the five acquisitions Berkshire made in the past year. The purchases of Business Wire and Forest River happened because executives at those companies wrote Buffett offering to sell.

"He sees deals that other people don't," Kaplan said. "That will not be true of his replacement."

The "Oracle of Omaha" built a 1956 partnership of four relatives and three close friends into a holding company with total assets of $198.3 billion at the end of 2005. Berkshire owns furniture, carpet, jewelry and candy companies, restaurants, natural gas and corporate jet firms and has major investments in such companies as Coca-Cola, Anheuser-Busch and Wells Fargo & Co.

"Nobody is Buffett or can be expected to be Buffett," said Andy Kilpatrick, the stockbroker who wrote "Of Permanent Value, the Story of Warren Buffett."

But Kilpatrick said he thinks Berkshire will be able to continue without significant problems under a successor even if "truly great" acquisitions are harder to come by.

"It'll do well," Kilpatrick said. "It just won't do quite as well."