Buffett's Berkshire will oppose USG board nominees after Knauf bid

(Reuters) - Warren Buffett's Berkshire Hathaway Inc BRKa.N plans to vote against four board nominees proposed by USG Corp USG.N, giving a boost to a $5.9 billion takeover bid by German's Gebr Knauf AG that the building products company had rejected.

FILE PHOTO: Berkshire Hathaway CEO Warren Buffett visits the BNSF booth before the Berkshire Hathaway annual meeting in Omaha, Nebraska, U.S., May 6, 2017. REUTERS/Rick Wilking/File Photo

Berkshire, which is USG’s largest shareholder with a 31 percent stake, announced its intention on Thursday, two days after Knauf called on USG shareholders to pressure that company to enter merger talks by withholding support for its director slate.

Knauf owns about 10.5 percent of USG.

“Berkshire’s present intention is to vote against the four directors proposed by management,” Buffett’s assistant, Debbie Bosanek, said in an email.

A USG spokeswoman did not respond to a request for comment.

Knauf’s takeover bid values USG at $42 per share. USG shares closed up 2.4 percent at $40.77 on Thursday. They closed at $33.51 on March 23, before Knauf’s bid became public.

Buffett has called his more than 17-year USG investment disappointing but “no disaster.”

A USG takeover could add to the $116 billion of cash and equivalents his Omaha, Nebraska-based conglomerate has to invest.

“You don’t normally see this kind of stuff from Berkshire,” said Morningstar Inc analyst Greggory Warren. “It’s not like they need the capital.”

Berkshire owns more than 90 businesses such as the BNSF railroad and Geico car insurance. Buffett has long preferred owning whole companies to individual stocks.

Earlier on Thursday, USG sent an open shareholder letter calling Knauf’s opposition to its director slate “a misguided attempt” to pressure the board into accepting a takeover “substantially below our intrinsic value.”

Berkshire’s offer to sell its roughly 43.4 million USG shares essentially created a pricing floor for any sale.

It was structured as a six-month option contingent on Knauf buying the rest of USG, with Knauf paying $2 per share upfront that Berkshire would keep if no merger occurred in that period.

Berkshire has owned USG since 2000, the year before asbestos liabilities helped push the Chicago-based company into bankruptcy for five years.

In 2008, after the housing market imploded, Berkshire bought $300 million of USG convertible debt, which was later swapped into stock.

USG’s board has 10 members but is “staggered,” meaning only four seats are being filled at its May 9 annual meeting.

Chief Executive Jennifer Scanlon and Chairman Steven Leer are not among the directors up for election. USG also has a “poison pill” defense to help thwart unwelcome takeovers.

Knauf said in a statement it is pleased by Berkshire’s support.

Reporting by Jonathan Stempel and Trevor Hunnicutt in New York; Editing by Steve Orlofsky and Cynthia Osterman