The dispute between
Berkshire Hathaway
and
PilotCorp.
is getting uglier.
Berkshire Hathaway, whose CEO is Warren Buffett, has bought an 80% stake in Pilot Travel Centers.
Berkshire alleged in a court filing Tuesday that Pilot Corp. CEO Jimmy Haslam, a member of the founding family of the truck-stop operator, orchestrated an “illicit” scheme to inflate Pilot Travel Centers’ 2023 earnings to boost the value of the family’s remaining stake in the company.
Pilot Corp., which continues to be controlled by the Haslam family, sold the 80% interest in Pilot Travel Centers to Berkshire and owns the remaining 20% stake. It filed a lawsuit against Berkshire filed in late October.
In a counterclaim to Pilot Corp.’s lawsuit, Berkshire said that Haslam “secretly promised massive side payments, from his own pocket” to “high-level PTC employees to induce them to prioritize PTC’s short-term 2023 earnings over PTC’s long-term value.” The number of employees is redacted in the publicly available court document. Jimmy Haslam is the son of Pilot founder “Big” Jim Haslam, 92.
“The purpose and effect of Haslam’s disloyal scheme was to artificially boost PTC’s 2023 earnings, which dictate Pilot’s 2024 payout—and to do so in an insidious and largely undetectable way,” the Berkshire suit alleges. A hearing on the matter is expected to be held Thursday in Delaware Chancery Court.
A Pilot Corp. spokesman declined to comment on behalf of the Haslams.
The background to the Berkshire court filing is complicated.
The Haslam family, which also holds a majority stake in the Cleveland Browns football team, agreed to sell the truck-stop company to Berkshire in three stages. Berkshire paid $2.8 billion for an initial purchase of 38.6% in 2017 and then $8.2 billion earlier this year for another 41.4%.
The Haslam family has the right to sell the remaining 20% to Berkshire starting on Jan. 1, 2024, on an earnings formula based on 2023 profits.
Pilot Corp. sued Berkshire in late October, claiming that Berkshire had changed Pilot Travel Centers’ accounting earlier this year without its consent. That change, Pilot asserted, resulted in an artificial reduction in Pilot Travel Centers’ reported profits that would result in a lower price to the family for the remaining 20% stake.
The formula for the sale of the 20% stake calls for Berkshire to pay a price that equates to 10 times Pilot Travel Centers’ earnings before interest and taxes. That formula was used for the valuation of the other 80%.
The 2023 accounting change implemented by Berkshire results in a sizable amount of noncash amortization of intangibles that depresses reported earnings.
In a court hearing earlier this month, it appeared that the accounting dispute involved about $1 billion in value, with Pilot Corp. suggesting in its court filing that the proper price for the remaining 20% stake is about $3.2 billion—a value that Berkshire assigned to that stake earlier this year.
During oral arguments in early November over the timing of the trial involving the Pilot claim, Berkshire’s lawyers suggested that the proper price was closer to $2 billion, according to a CNBC article.
The Delaware court earlier this month ruled in favor of Pilot Corp. on the timing of the trial on the accounting issue, which Pilot wanted to be held quickly. A trial is expected in early 2024. Pilot Corp. sought an expedited trial because the sale window for the remaining 20% ends in the first quarter of 2024.
Berkshire replaced the management team at Pilot Travel Centers in March 2023 after boosting its stake to 80%. Adam Wright was named CEO, replacing Shameek Konar.
In its suit, Berkshire states: “Haslam’s promises to PTC employees—promises by a former majority owner with a lingering put option tied to short-term performance—were concealed from PTC’s senior management and from Berkshire, PTC’s majority owner. The payments that Haslam promised the employees would be made outside of PTC’s official employee compensation plan, and would exceed the employees’ annual salaries by an order of magnitude.”
Berkshire is asking the court to bar Pilot Corp. from exercising its right to sell its remaining 20% stake in early 2024 based on what it calls “corruptly influenced 2023 earnings” or another form of relief.
Berkshire said it learned of the alleged scheme earlier this month. In its suit, it alleges: “In early November 2023, a senior PTC executive revealed to PTC’s current CEO (who was appointed after Berkshire took control) that Jimmy Haslam had promised personally to pay the executive a bonus linked to the amount Pilot would receive upon exercising its Put Option in 2024. Haslam made that same promise to approximately 15 senior PTC executives at a March 2023 dinner at Knoxville’s Cherokee Country Club.”
Corrections & Amplifications
The former CEO of Pilot Travel Centers was Shameek Konar. An earlier version of this article incorrectly reported that it was Jimmy Haslam, who is CEO of Pilot Corp., which remains under the control of the Haslam family.
Write to Andrew Bary at [email protected]
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