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Berkshire and Buffett have 5 words for sellers who want their money: ‘Take it or leave it’

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As fans flock this weekend 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 mystique. Buffett and Berkshire
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are distinct 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 inimitable personality and circumstance. But being a “cafeteria Buffett” is possible: picking the best practices that suit. Many companies have emulated parts of the Berkshire model well and there are plenty of executives as talented as Buffett when it comes to investment savvy or managerial insight.

Two of my favorite Berkshire/Buffett oddities concern how they find acquisitions and how they approach price.

To generate acquisition opportunities, they rely on their professional network. They put the word out that 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 haggle over but rather put their first-and-best offer up front. They know what things are worth and know what they are willing to pay. They are also perfectly happy to walk away from any opportunity and part friends.

A favorite story concerned a company called Tech Data, which reached out to Berkshire during its go-shop period for another merger. Berkshire made a proposal, Tech Data countered for more, Berkshire said no and walked, and the company was ultimately acquired by its initial pursuer.

For my book, Berkshire Beyond Buffett: The Enduring Value of Values, I collated the sources and pricing of Berkshire Hathaway acquisitions and present updated versions through the most recent acquisition, of Alleghany, in the charts below. Think about this the next time you read about another Berkshire buy.

Sources of Berkshire Hathaway acquisitions

Seller overture (in a pure sense; if it was the owner’s idea but prompted by other links, the deal is listed under those links):

Fechheimer Bros.; Helzberg’s Diamond Shops (walking down the street in New York City); Ben Bridge (Ed Bridge called, after talking with Barnett Helzberg); MiTek (subsidiary chief executive officer sent package in mail with parent company’s permission); Larson-Juhl (call from owner); Forest River; Business Wire (actually from CEO; suggesting owner would approve); ISCAR; Richline owner heard Buffett speak at a Ben Bridge lunch); Star Furniture (through intermediary: endorsed by Blumkins and Child; contacted Denham), Willey (through intermediary: Child asked Irv Blumkin).

Business relationship

Gen Re (Ronald Ferguson); U.S. Liability (Ferguson); Applied Underwriters (Ajit Jain did deal 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 aborted insurance deal); McLane (Byron Trott, Goldman Sachs); The Marmon Group (seeds date to 1954 when Buffett met Jay Pritzker), Alleghany (Joe Brandon)

Friend/relative

NICO (Jack Ringwalt); Central States (Bill Kizer); Kansas Bankers Surety (at niece’s birthday party); H. H. Brown Shoe (John Loomis golfing with Frank Rooney); XTRA (Julian Robertson); TTI (John Roach, friendship seemed to arise with Justin), MidAmerican (Walter Scott, Jr.)

Berkshire overture

Scott Fetzer (wrote CEO amid waning takeover contest); Jordan’s Furniture (implicitly, asking Blumkins, Bill Child, and Melvyn Wolff); Johns Manville (announced deal broke off; Berkshire stepped up); Fruit of the Loom (made offer in bankruptcy), Precision Castparts (was an investor and reached out in the course of Precision’s regular investor outreach activities)

Stranger

CORT (acquaintance sent fax); FlightSafety International (shareholder of both wrote Robert Denham), Justin (someone faxed about co-investing proposal).

Pricing of Berkshire Hathaway acquisitions

Alleghany

Berkshire offered price. Seller asked for an increase. Berkshire said no.

Benjamin Moore

Berkshire offered price. No counter.

BNSF

Berkshire offered price. Seller asked for more. Berkshire said no.

Clayton Homes

Berkshire offered price. Board had CEO ask for more. Berkshire said no.

CTB

Berkshire offered price, and actually went down a quarter-point for adviser fees. Berkshire said that’s it.

Dairy Queen

Berkshire offered price. No further discussion.

Fruit of the Loom

Berkshire offered single bid in bankruptcy at end of auction process and won.

Garan

Seller sought price above $60 a share. Berkshire offered $60 and that was that.

Gen Re

Buffett proposed the exchange ratio and Gen Re went along.

Johns Manville

Berkshire offered price. Board tried to get more. Berkshire said no.

Justin

Berkshire offered price. Another bidder dropped out. No further discussion.

Lubrizol

Berkshire offered price. Seller tried to get more. Berkshire said no.

Precision Castparts

Berkshire offered price. Seller asked for an increase. Berkshire said no.

Shaw Industries

Berkshire offered price. Board/banker asked for more. Berkshire said that’s our best price.

XTRA

Berkshire offered $59 a share. Seller asked “Is that 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 of Berkshire Hathaway. For updates on Cunningham’s research about quality shareholders, sign up here.

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