Pilot Company and Berkshire Hathaway have reached an agreement to settle a lawsuit over the valuation of Pilot Travel Centers, the largest operator of truck stops in North America. The lawsuit, filed by the Haslam family, the founders and minority owners of Pilot, accused Berkshire Hathaway of using a different accounting method to lower the reported earnings and value of Pilot. Berkshire Hathaway, which owns 80% of Pilot, countersued, alleging that the Haslams inflated the value of Pilot by manipulating its financial statements. The settlement comes just before the Haslams have the option to sell their remaining 20% stake in Pilot to Berkshire Hathaway, starting from Jan. 1, 2024.
The origin of the dispute
Berkshire Hathaway, led by billionaire investor Warren Buffett, acquired 38.6% of Pilot in 2017 for $2.76 billion, and increased its stake to 80% in January 2023 for an additional $8.2 billion. The deal gave Berkshire Hathaway the right to buy the remaining 20% of Pilot from the Haslams, who still control the company’s board and management, at a price determined by a formula based on Pilot’s earnings before interest and taxes (EBIT), adjusted for cash and debt. The formula was the same one used for the previous transactions, and the Haslams have an annual option to sell their stake, within 60 days after the end of each fiscal year.
However, the Haslams claimed that after Berkshire Hathaway took control of Pilot in January 2023, it changed Pilot’s accounting practices from the acquisition method to the pushdown method, which reflects the purchase price rather than the historical cost of Pilot’s assets and liabilities. The Haslams argued that this change artificially depressed Pilot’s reported EBIT by increasing depreciation and amortization expenses and preventing the recognition of gains on derivative instruments and other hedges in the income statement. The Haslams sued Berkshire Hathaway in October 2023 in Delaware Chancery Court, seeking a declaratory judgment that the pushdown method was not allowed under the investor rights agreement, and an injunction to prevent Berkshire Hathaway from using it to value Pilot.
Berkshire Hathaway, on the other hand, accused the Haslams of devising a scheme to inflate the value of Pilot by manipulating its financial statements, such as overstating its inventory, understating its liabilities, and misclassifying its expenses. Berkshire Hathaway also alleged that the Haslams breached their fiduciary duties by failing to disclose material information and acting in bad faith. Berkshire Hathaway filed a countersuit in November 2023, seeking damages and a declaratory judgment that the pushdown method was permitted under the investor rights agreement, and that the Haslams had no right to sell their stake until the dispute was resolved.
The terms of the settlement
The parties announced on Sunday, Jan. 8, 2024, that they had reached an agreement to settle the lawsuit and resolve the dispute over the valuation of Pilot. The terms of the settlement were not disclosed, but both sides expressed satisfaction with the outcome and praised each other for their partnership and cooperation.
“We are pleased to have reached an amicable resolution with Berkshire Hathaway and look forward to continuing our successful collaboration with them,” said Jimmy Haslam III, the CEO of Pilot and the son of the company’s founder. “We are proud of the growth and performance of Pilot under our joint ownership and management, and we are confident that we will achieve even greater results in the future.”
“We are happy to have settled this matter with the Haslam family and to have reaffirmed our strong relationship with them,” said Ted Weschler, one of Buffett’s top lieutenants and a director of Pilot. “We have great respect for the Haslams and their leadership of Pilot, and we are excited to remain their long-term partners in this outstanding business.”
The settlement ends the uncertainty and litigation risk for both parties, and clears the way for the Haslams to decide whether to sell their remaining stake in Pilot to Berkshire Hathaway, or to retain their minority ownership and influence over the company. Pilot, which operates more than 900 locations across the U.S. and Canada, is the market leader in the truck stop industry, serving millions of professional drivers and travelers every year. The company reported revenues of $19.4 billion and EBIT of $1.2 billion in 2023, according to its financial statements.