As fans flock to Omaha, Neb., this weekend for Berkshire Hathaway’s annual shareholder meeting hosted by Chairman and CEO Warren Buffett, you might be wondering what all the fuss is about.
The answer: unique mysticism. Buffett and Berkshire BRK.A, +0.67% BRK.B, +0.51% differentiate themselves in the corporate world with a combination of unusual practices and styles unmatched by any competitor.
Nor should any competitor expect to match the Berkshire/Buffett model, which is a product of inimitable personality and circumstances. But being a “Cafeteria Buffett” is possible: choosing the best practices that suit you. Many companies have done a good job of emulating parts of the Berkshire model, and there are plenty of executives as gifted as Buffett when it comes to investment savvy or managerial insight.
Two of my favorite oddities about Berkshire/Buffett involve how they find acquisitions and how they approach price.
To generate acquisition opportunities, they rely on their professional network. They say they’re always open to acquisition opportunities within certain parameters, and then look for business relationships to kick start them.
They almost never haggle on the price, instead putting their first and best offer in the foreground. They know what things are worth and know what they are willing to pay. They are also perfectly happy to leave any opportunity and part with friends.
A favorite story was about a company called Tech Data that Berkshire contacted about another merger during its go-shop phase. Berkshire made a proposal, Tech Data countered with more, Berkshire said no and left, and the company was eventually acquired by its original pursuer.
For my book Berkshire Beyond Buffett: The Enduring Value of Values, I compiled the sources and prices of Berkshire Hathaway’s acquisitions and present updated versions through the recent Alleghany acquisition in the charts below. Think about it the next time you read about another Berkshire purchase.
Sources of Berkshire Hathaway’s acquisitions
Seller offer (in the pure sense; if it was the owner’s idea but prompted by other links, the business will be listed under these links): | Fechheimer brothers; Helzberg’s Diamond Shops (walk down the street in New York City); Ben Bridge (nicknamed Ed Bridge after talking to Barnett Helzberg); MiTek (Chief Executive Officer of a subsidiary mailed a package with parent company permission); Larson-Juhl (call from owner); forest river; Business Wire (actually from the CEO; suggests the owner would agree); IS AUTO; Richline owner overheard Buffett speaking at a Ben Bridge luncheon); Star Furniture (via intermediary: supported by Blumkins and Child; contacted Denham), Willey (via intermediary: Child asked Irv Blumkin). |
business relationship | Gene Re (Ronald Ferguson); US Liability (Ferguson); Applied Underwriters (Ajit Jain deals with owners); Dairy Queen (bankers introduced a year before Rudy Luther died; then quickly done away with); Benjamin Moore (Robert Mundheim); NetJets (customer; called Richard Santulli); Shaw Industries (after discussing a canceled insurance contract); McLane (Byron Trott, Goldman Sachs); The Marmon Group (seeds date back 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); HH Brown Shoe (John Loomis golfing with Frank Rooney); XTRA (Julian Robertson); TTI (John Roach, friendship seemed to develop with Justin), MidAmerican (Walter Scott, Jr.) |
Berkshire Overture | Scott Fetzer (wrote CEO amid slacking takeover competition); Jordan’s Furniture (implicitly asked about Blumkins, Bill Child and Melvyn Wolff); Johns Manville (announced deal fell through; Berkshire got on); Fruit of the Loom (made an offer in bankruptcy proceedings), Precision Castparts (was an investor and contacted Precision as part of its regular investor outreach) |
stranger | CORT (fax sent by friend); FlightSafety International (shareholders of both wrote Robert Denham), Justin (someone faxed about co-investment proposal). |
Pricing of Berkshire Hathaway’s acquisitions
Alleghany | Berkshire asking price. The seller asked for an increase. Berkshire said no. |
Benjamin Moore | Berkshire asking price. No counter. |
BNSF | Berkshire asking price. Seller asked for more. Berkshire said no. |
Clayton Houses | Berkshire asking price. The board had the CEO ask for more. Berkshire said no. |
CTB | Berkshire offered the price and actually fell a quarter point on advisor fees. Berkshire said it is. |
milk queen | Berkshire asking price. No further discussion. |
fruit of the loom | Berkshire offered a single bid in the bankruptcy filing at the end of the auction process and won. |
guarantee | The seller was targeting a price above $60 per share. Berkshire offered $60 and that was it. |
Gen Re | Buffett proposed the exchange ratio, and Gen Re agreed. |
John Manville | Berkshire asking price. Board tried to get more. Berkshire said no. |
justin | Berkshire asking price. Another bidder dropped out. No further discussion. |
Lubrizol | Berkshire asking price. The seller tried to get more. Berkshire said no. |
precision castings | Berkshire asking price. The seller asked for an increase. Berkshire said no. |
Shaw Industries | Berkshire asking price. Executive/banker asked for more. Berkshire said that’s our best price. |
XTRA | Berkshire offered $59 per share. The salesman 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 editor of The Essays of Warren Buffett: Lessons for Corporate America since 1997. Cunningham owns shares of Berkshire Hathaway. Sign up here for updates on Cunningham’s research on quality shareholders.
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