October 5, 2017 2:30 PM, EDT

Berkshire Hathaway to Buy Majority of Pilot Flying J in Two-Step Process


Warren Buffett’s Berkshire Hathaway Inc. investment company bought a minority stake in Pilot Travel Centers LLC, owner of the Pilot Flying J truck stop chain, and will become the majority shareholder in six years.

Berkshire acquired 38.6% of the nation’s largest truck stop chain, mainly from the family of company chairman James Haslam II, who founded Knoxville, Tenn.-based Pilot in 1958. The Haslams, including the founder and his son, CEO Jimmy Haslam, will retain a 50.1% stake through 2023.

In that year the Haslams will sell another 41.4% of the company to Omaha, Neb.-based Berkshire, and the split will be 80% for Berkshire and 20% for the Haslams.

The sale was announced by the two parties in a joint statement Oct. 3. Details of the terms of the transaction, including how much Berkshire paid for its initial stake in Pilot, were not released.

Pilot Flying J took its current shape in 2010, when Pilot Travel Centers acquired rival chain Flying J. The company operates 750 truck stops in 43 states and six Canadian provinces, employing more than 27,000 people and selling 7 billion gallons of diesel fuel annually.

“Pilot Flying J is built on a long-standing tradition of excellence and an unrivaled commitment to serving North America’s drivers,” said Buffett, Berkshire’s chairman and CEO.

“Jimmy Haslam and his team have created an industry leader and a key enabler of the nation’s economy. The company has a smart growth strategy in place, and we look forward to a partnership that supports the trucking industry for years to come,” Buffett said in the statement.

Haslam, Pilot’s CEO since 1996, is also the owner of the National Football League’s Cleveland Browns. His brother William Haslam was once president of Pilot and is now serving a second four-year term as governor of Tennessee.

Berkshire Hathaway is a publicly traded conglomerate with net income of $24.07 billion on revenue of $223.6 billion in 2016.

Although Pilot has annual revenue in excess of $20 billion, Berkshire is so much larger it was not obligated to file with the U.S. Securities and Exchange Commission on the deal and as of Oct. 5 had not done so. It also isn’t required to disclose the purchase price until the end of the fourth quarter.

Argus Research Corp. analyst Stephen Biggar said Berkshire Hathaway has a history of buying family-owned businesses looking to cash out and leave the industry.

“He gives owners who’ve reached their growth limits or retirement age an outlet to sell the business while also keeping the same managers and running things in a very decentralized manner,” Biggar said.

Some of Berkshire’s well-known assets are insurance companies GEICO and General Re Corp. as well as energy firms. But Berkshire also has a significant presence in trucking and freight transportation, according to the company’s annual report.

Foremost is Class 1 freight carrier BNSF Railway Co. The company ranks No. 8 on the Transport Topics Top 50 list of global freight carriers.

Berkshire Hathaway also owns Marmon Highway Technologies, with 15 product lines including Fontaine (flatbed) Trailers and Fifth Wheels. And it owns Lubrizol Corp., which produces additives for engine oils and diesel fuel.

Its McLane Co. provides wholesale distribution services and ranks No. 9 on the TT100 list of private carriers and its carpet manufacturer, Shaw Industries, is No. 61 on the Private 100.

XTRA Corp., which does business as XTRA Lease, manages a lease fleet of 78,000 units, including over-the-road and storage trailers, chassis, temperature controlled vans and flatbed trailers.

The Berkshire-Pilot announcement also said FJ Management, owned by the Maggelet family, still has an 11.3% ownership stake in Pilot that it will keep until 2023, at which point it will sell to Berkshire Hathaway.

The Haslam family has a third generation already working at Pilot Flying J. Whitney Haslam Johnson, Jimmy’s daughter, is the company’s chief experience officer, and Will Haslam, the governor’s son, is director of giving back, Pilot’s website said.

The nation’s truck stop industry includes many small, local facilities, but Pilot Flying J does have some large competitors. The two biggest are: Love’s Travel Stops with 430 locations in 41 states; TravelCenters of America and Petro Stopping Centers with 256 travel centers in 43 states and in Canada.

Roady’s Truck Stops is a group of 182 independent, locally owned U.S. truck stops that join together for marketing and purchasing.

In recent years, Pilot has been attempting to put to rest a legal case regarding a multimillion-dollar fraud scheme that became public in April 2013, when FBI agents raided the company headquarters.

Since then, 14 of the company’s former sales executives have pleaded guilty to cheating customers out of promised diesel fuel rebates and agreed to cooperate with federal authorities while awaiting sentencing. Four additional executives, including former Pilot President Mark Hazelwood, are set to go to trial in U.S. District Court in Chattanooga, Tenn., on Oct. 31.

Pilot already has paid the federal government a $92 million penalty to take responsibility for the criminal actions of employees who shortchanged trucking companies, but the agreement did not preclude individual prosecutions.