Monday, June 26th, 2006 | 11:41 pm | Administrator

Buffett’s Philanthropy Buffet

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As you all have heard by now, the second richest man in the world, Warren Buffett, has made the long awaited decision to give away the bulk of his 44 billion dollars to five different charitable foundations. The biggest beneficiary will be the Bill and Melinda Gates Foundation, which, at $30 billion in assets, is already the largest foundation in the world. So, the two richest men in the world join their tremendous assets to create the most powerful philanthropic machine the world has ever seen.

The Gates Foundation deal was inked earlier today after a television appearance with the three principles on The Charlie Rose Show in New York City. Buffett’s divestiture plan (explained below) will give off approximately 1.5 billion in today’s dollars in July of this year and similarly for a number of years forward to the Gates Foundation. By design, most of Buffett’s annual gifts will be put to use each year on Gates Foundation projects.

The Bill and Melinda Gates Foundation focuses approximately 60% of its resources fighting viruses — like malaria and HIV-AIDS — and correcting poverty conditions around the world and another one-third on education reform in the United States. As you can imagine, their approach is well planned, strategic and calculated. Ultimately, it’s one of the best managed and efficient foundations in the world. Along with the fact that he has the highest personal faith in Bill and Melinda to be the shepherds of the “body of his life’s work”, as Melinda Gates put it on today’s Charlie Rose Show, Buffett felt it was a “no brainer” to make this gift.

Buffett will also give a significant amount of his net worth to four other foundations, each associated with a different member of his immediate family.

The Susan Thompson Buffett Foundation, renamed after Buffett’s late wife, will receive approximately $150 million this year.

The Susan A. Buffett Foundation of Omaha, NE; the Howard G. Buffett Foundation of Decatur, IL; and the NoVo Foundation of New York City will each receive approximately $52.5 million this year.

The Deal

Here’s how this ingenious gift will work.

Buffett will slowly convert his A shares of Berkshire Hathaway stock (symb: BRK/A) — currently trading at $91,600 — into B shares (symb: BRK/B) — trading at $3,048 — roughly a 30:1 conversion. He has made an irrevocable agreement with each of the five foundations to earmark a set amount of B shares to be gifted slowly over the next couple decades.

Bill and Melinda Gates Foundation (10,000,000 B shares)
Susan Thompson Buffett Foundation (1,000,000 B shares)
Susan A. Buffett Foundation (350,000 B shares)
Howard G. Buffett Foundation (350,000 B shares)
NoVo Foundation (Peter A. Buffett) (350,000 B shares)

Every year in July, for the next couple of decades, 5% of the remaining earmarked shares of Berkshire Hathaway B will be gifted to the respected foundations. Buffett in all his optimism is confident that the annual gain of Berkshire stock on a year-to-year basis should make-up in dollar value the 5% in lost shares, such that in 20-years the amount of the annual gift remains about the same as it is today (not taking into account, of course, the effects of inflation).

The two main conditions of the Gates Foundation agreement are:

1. Either Bill or Melinda Gates must be alive and running the Foundation during the term of Buffett’s gift; and

2. His gift must be utilized in its entirety every year up to the amount of 5% of the assets of the Foundation plus the value of Buffett’s gift. So, the Foundation at $30 billion must give away 5% ($1.5 billion) of its own money plus the additional $1.5 billion of Buffett’s first year gift — a cool $3 billion of annual giving.

Click here to view copies of the actual letters of agreement sent by Warren Buffett to the Bill and Melinda Gates Foundation and others.

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