Meaning: Berkshire and Buffett have 5 words for sellers who want their money: “Take it or leave it”
While fans this weekend flock to Omaha, Neb. For Berkshire Hathaway’s annual shareholders’ meeting hosted by Chairman and CEO Warren Buffett, you may be wondering what all the fuss is about.
The answer: unique mystery. Buffett and Berkshire BRK.A,
BRK.B,
are evident in the corporate world for a combination of unusual practices and styles that no rival matches.
Nor should any rival expect to match the Berkshire / Buffett model, which is a product of incomparable personality and circumstances. But being a “cafeteria buffett”[ads1]; is possible: choosing the best practices that fit. Many companies have mimicked parts of the Berkshire model well, and there are many executives as talented as Buffett when it comes to investment knowledge or managerial insight.
Two of my favorites in Berkshire / Buffett are about how they find acquisitions and how they approach the price.
To generate acquisition opportunities, they rely on their professional network. They say they are always open to acquisition opportunities within specific parameters, and then look for business relationships to tee them up.
On price, they almost never bargain, but rather present their first and best offer. They know what things are worth and know what they are willing to pay. They are also very happy to walk away from any opportunity and share friends.
A favorite story was about a company called Tech Data, which reached out to Berkshire during its go-shop period for a new merger. Berkshire came up with a proposal, Tech Data answered for more, Berkshire said no and left, and the company was eventually acquired by the first pursuer.
For my book, Berkshire Beyond Buffett: The Enduring Value of Values, I gathered the sources and prices for the Berkshire Hathaway acquisition and present updated versions through the latest acquisition, by Alleghany, in the charts below. Think about this the next time you read about another Berkshire purchase.
Sources for Berkshire Hathaway acquisitions
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Seller persuasion (in the pure sense; if it was the owner’s idea, but encouraged by other links, the agreement is listed under these links): |
Fechheimer Bros .; Helzbergs diamond shops (walk down the street in New York City); Ben Bridge (Ed Bridge called, after talking to Barnett Helzberg); MiTek (CEO of the subsidiary sent a package in the mail with the parent company’s permission); Larson-Juhl (call from owner); Forest River; Business Wire (actually from the CEO; suggests that the owner will approve); ISCAR; The Richline owner heard Buffett speak at a Ben Bridge lunch); Star Furniture (through intermediary: approved by Blumkins and Child; contacted Denham), Willey (through intermediary: Child asked Irv Blumkin). |
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Business relations |
Gen Re (Ronald Ferguson); US Responsibility (Ferguson); Applied Underwriters (Ajit Jain traded with owners); Dairy Queen (banker introduced a year before Rudy Luther died; then done quickly); Benjamin Moore (Robert Mundheim); NetJets (customer; Richard Santulli called); Shaw Industries (after discussing termination of insurance contract); McLane (Byron Trott, Goldman Sachs); The Marmon Group (seeds dated to 1954 when Buffett met Jay Pritzker), Alleghany (Joe Brandon) |
|
Friend / relative |
NICO (Jack Ringwalt); Central States (Bill Kizer); Kansas Bankers Surety (at the niece’s birthday party); HH Brown Shoe (John Loomis golfer with Frank Rooney); XTRA (Julian Robertson); TTI (John Roach, friendship seemed to emerge with Justin), MidAmerican (Walter Scott, Jr.) |
|
Berkshire opening |
Scott Fetzer (wrote CEO in the midst of declining takeover competition); Jordan’s furniture (implicitly, ask Blumkins, Bill Child and Melvyn Wolff); Johns Manville (announced deal broke off; Berkshire stepped up); Fruit of the Loom (made an offer during bankruptcy), Precision Castparts (was an investor and reached out during Precision’s regular investor outreach activities) |
|
Stranger |
CORT (known fax sent); FlightSafety International (shareholder in both wrote Robert Denham), Justin (someone has faxed about co-investment proposals). |
Pricing of Berkshire Hathaway Acquisitions
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Alleghany |
Berkshire offered price. Seller asked for increase. Berkshire said no. |
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Benjamin Moore |
Berkshire offered price. Nobody counts. |
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BNSF |
Berkshire offered price. Seller asked for more. Berkshire said no. |
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Clayton Homes |
Berkshire offered price. The board had the CEO ask for more. Berkshire said no. |
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CTB |
Berkshire offered the price, and actually went down a quarter of a point for advisor fees. Berkshire said that was it. |
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Dairy Queen |
Berkshire offered price. No further discussion. |
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Weave fruit |
Berkshire offered single bids in bankruptcy at the end of the auction process and won. |
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Is possible |
Seller sought price over $ 60 per share. Berkshire offered $ 60 and that was it. |
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Genre |
Buffett suggested the exchange and Gen Re agreed. |
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Johns Manville |
Berkshire offered price. The board tried to get more. Berkshire said no. |
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Justin |
Berkshire offered price. Another bidder dropped out. No further discussion. |
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Lubrizol |
Berkshire offered price. Seller tried to get more. Berkshire said no. |
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Precision castings |
Berkshire offered price. Seller asked for increase. Berkshire said no. |
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Shaw Industries |
Berkshire offered price. Board / banker asked for more. Berkshire said it is our best price. |
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XTRA |
Berkshire offered $ 59 a share. Seller asked “Is this your best offer?” Berkshire said it was. |
Lawrence A. Cunningham is a professor at George Washington University, founder of the Quality Shareholders Group, and publisher since 1997 of “The Essays of Warren Buffett: Lessons for Corporate America.” Cunningham owns shares in Berkshire Hathaway. For updates on Cunningham’s research on quality shareholders, sign up here.
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