Warren Buffet said that Berkshire Hathaway stockholders may be harmed by Berkshire's planned acquisition of Wesco Financial Corporation, a Pasadena-based corporation that owns insurance companies, among other things. Berkshire's planned stock-and-cash deal will give it a 100% stake in Wesco, but Buffet believes that using Berkshire stock will dilute Berkshire's shareholders' stock for a firm that may have less growth potential.

Berkshire is the top investor of several large corporations, including Kraft Foods Inc. Last year Berkshire disapproved of Kraft's plan to issue shares for an acquisition, Bloomberg News reports. Berkshire reportedly called stock a "very expensive currency."

In a letter that was included in a regulatory filing, Buffet rebuffs a request from Wesco Director Carolyn Carlburg for a higher offer. Buffet also told Carlburg of his concerns about too many Wesco shareholders opting to take Berkshire stock.

"We regard the transaction as disadvantageous to Berkshire if a substantial number of Wesco shareholders elect to take Berkshire stock," Buffett wrote. "That's because I believe the prospects for Berkshire shares over the next 10 years to be considerably better than the prospects for Wesco shares."

Wesco shares have declined about 1.8% on the New York Stock Exchange in the past 12 months, Bloomberg reports. Omaha-based Berkshire stock gained about 2.1% during the same period. Berkshire stock also trades 1.34 times its book value, whereas Wesco stock trades at book value.

The Wesco deal is led by 87-year-old Berkshire Vice Chairman Charles Munger, who has helped Buffet run Berkshire four decades, Bloomberg reports. Munger supported the Wesco buyout in January and Berkshire raised its bid for Wesco on Wednesday.

Source: Bloomberg News, "Buffett says Berkshire investors could be hurt by takeover of Wesco," 3/7/11