Berkshire Hathaway's Strategic Divestiture of Pilot's Water-Management Unit: A Case Study in Governance, Accounting, and Shareholder Value

In the ever-evolving landscape of corporate strategy, few cases encapsulate the tension between governance, accounting rigor, and long-term value creation as vividly as Berkshire Hathaway's acquisition and subsequent operational reconfiguration of Pilot Co. The recent full acquisition of the remaining 20% stake in Pilot, completed in January 2024, marks the culmination of a high-stakes ownership dispute that laid bare the complexities of valuing infrastructure assets and the critical role of corporate governance in resolving such conflicts. For investors, the case offers a masterclass in how institutional players navigate high-stakes disputes while aligning short-term financial pragmatism with long-term strategic goals.

The Acquisition: A Strategic “Golden Spike”

Berkshire Hathaway's journey to full ownership of Pilot began in 2017 with a $2.8 billion acquisition of a 38.6% stake. By January 2023, it had increased its holdings to 80% for $8.2 billion. The final 20%—held by the Haslam family, Pilot's founding dynasty—was acquired in January 2024, resolving a protracted legal battle. This “golden spike” moment not only unified ownership but also eliminated lingering governance risks that had emerged from the Haslam family's annual option to sell their stake based on a 10x EBIT multiple.

The dispute centered on accounting practices: Berkshire and the Haslam family clashed over the calculation of EBIT, with the former seeking to minimize the purchase price and the latter aiming to maximize it. The legal drama escalated when Berkshire alleged that Jimmy Haslam, a member of the founding family, attempted to bribe executives to inflate profits. Though these claims were dismissed as irrelevant to the civil case, the settlement ensured a clean transfer of control.

Accounting as a Strategic Tool

The Pilot case underscores how accounting practices can become battlegrounds in high-stakes ownership disputes. EBIT, a proxy for operational performance, became a focal point for both sides. Berkshire's preference for conservative accounting—favoring lower EBIT to reduce the acquisition price—contrasted sharply with the Haslam family's aggressive approach to maximizing value. This divergence highlights a broader trend: in infrastructure and energy sectors, where cash flow predictability is paramount, accounting assumptions can significantly alter valuation multiples.

For investors, this serves as a cautionary tale. While EBIT is a widely used metric, its manipulation—or even the perception of manipulation—can erode trust in corporate governance. The resolution of the dispute, though legally expedient, raises questions about the transparency of earnings reporting in asset-heavy industries.

Governance and Shareholder Value: A Delicate Balance

The full acquisition of Pilot by Berkshire has profound implications for corporate governance. By eliminating minority shareholder dissent, Berkshire has streamlined decision-making, a critical advantage in sectors where agility can determine competitive positioning. The resolution of the dispute also aligns with Warren Buffett's long-standing preference for full ownership of businesses with “durable moats.” Pilot's water-management unit, which provides oilfield water disposal services, is now fully integrated into Berkshire's ecosystem, allowing for cross-sector synergies and enhanced operational efficiency.

However, the legal battle itself exposed vulnerabilities in governance structures. The Haslam family's annual option to sell their stake created a perpetual uncertainty that could have disrupted strategic planning. For instance, the exit of Pilot's international oil trading business in 2024—a move aimed at focusing on core U.S. operations—was facilitated by the removal of this governance risk.

Implications for Investors

The Pilot case offers three key lessons for investors:
1. Strategic Patience Trumps Short-Term Volatility: Berkshire's staged acquisition of Pilot, spanning nearly a decade, exemplifies the value of long-term strategic patience. Despite the legal drama, the company's stock price remained resilient, reflecting investor confidence in its ability to navigate complex transactions.
2. Governance Risk is a Material Factor: The ownership dispute underscored how minority stakes can introduce governance risks that impact valuation. Investors should scrutinize corporate structures for potential conflicts of interest, particularly in family-owned businesses with public ownership layers.
3. Accounting Rigor is Non-Negotiable: The EBIT dispute highlights the need for transparent and defensible accounting practices. In infrastructure and energy sectors, where earnings volatility is common, conservative reporting can mitigate disputes and enhance stakeholder trust.

Conclusion: A Model for Value Creation

Berkshire Hathaway's full acquisition of Pilot Co. is more than a corporate milestone—it is a case study in how strategic patience, governance discipline, and accounting rigor can align to create enduring value. The water-management unit, now fully integrated into Berkshire's portfolio, exemplifies the company's preference for essential, cash-generative businesses. For investors, the case reaffirms the importance of aligning with management teams that prioritize long-term stability over short-term gains. As the energy transition accelerates, Pilot's role in water management and alternative fuels positions it as a critical asset in Berkshire's evolving infrastructure portfolio.

In an era of regulatory scrutiny and activist campaigns, the Pilot acquisition demonstrates that the intersection of corporate strategy, governance, and accounting is where true value is forged—not in the headlines, but in the quiet discipline of long-term thinking.