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The really interesting thing here is that Buffett is set to use Berkshire shares for the acquisition. I can’t remember the last time that he did this, I know he
by jakarta 17y ago
The really interesting thing here is that Buffett is set to use Berkshire shares for the acquisition. I can’t remember the last time that he did this, I know he really regretted it with Dexter Shoe Co.:
In 1993, Berkshire paid $433 million for the Maine-based company. Rather than use cash, Buffett used Berkshire Class A stock to fund the purchase. That Berkshire stock is worth eight times more now, giving the Omaha, Nebraska-based insurance and investment company a $216 billion market value.
Dexter didn’t make it that long. It ended shoe production in the United States and Puerto Rico in 2001, and Berkshire folded what was left into its H.H. Brown Shoe Group unit.
“What I had assessed as durable competitive advantage vanished within a few years,” Buffett wrote on Friday. “By using Berkshire stock, I compounded this error hugely. That move made the cost to Berkshire shareholders not $400 million, but rather $3.5 billion. In essence, I gave away 1.6 percent of a wonderful business — one now valued at $220 billion — to buy a worthless business.”
“To date, Dexter is the worst deal that I’ve made,” Buffett went on. “But I’ll make more mistakes in the future – you can bet on that. A line from Bobby Bare’s country song explains what too often happens with acquisitions: ‘I’ve never gone to bed with an ugly woman, but I’ve sure woke up with a few.’”
- byrneseyeview 17y agoHe's said that he'll do it if he gets equivalent value for the money. I believe he bought either Netjets or Flight Safety for stock, too.
- jakarta 17y agoyou're right, it was NetJets in 1998 http://www.berkshirehathaway.com/news/jul2398.html http://www.berkshirehathaway.com/news/jul2398.html
- byrneseyeview 17y agoAlso General Re in the same year.
- ggrot 17y agoI don't see why it matters whether or not he uses cash or stock. If he had bought dexter using cash, the investors could have turned around and used that cash to purchase berkshire stock - making the deal equivalent to buying with stock. The fact that the stock went up over time would have been true in either case. I think that the comment about it being a mistake to have used stock instead of cash, and that it was compounded, was simply to make for a better story.
- ztravis 17y agoIn general, there isn't that much stock on the market (millions/billions of dollars worth) that an outside investor can get his hands on. So, if Buffet had bought dexter using cash, the investors couldn't have just turned around and used that cash to purchase Berkshire stock.
- JimmyL 17y agoExactly - if you look at the numbers, you'll see that BRK.A is a very low-volume stock (today's volume was 1,700, which is quite high for that stock). It's also got only 1.5M shares outstanding, in comparison to (for example) IBM's 1.3B.