Berkshire's one-man show By David Carey    Updated 04:16 PM, Nov-16-2012 ET   

Over the past decade or so, the world's most revered stock picker has transformed his investment platform into a fast-moving takeover juggernaut whose unorthodox methods, coupled with an ability to tap an internal ATM to fund jumbo-sized cash deals, put it in a league of its own. To a remarkable degree, the acquisition vehicle is steered in nearly every particular by a single man -- the octogenarian from Omaha who built it.

Perhaps more than any other major corporate dealmaker, Berkshire Hathaway Inc.'s Warren Buffett is his own agent and appraiser, longtime observers say. On occasion, it's true that bankers he trusts, notably Byron Trott, a former managing director at Goldman Sachs, have helped midwife Berkshire deals, such as its $23 billion Wm. Wrigley Jr. Co. purchase in partnership with Mars Inc. in 2008, or the $4.5 billion acquisition of Marmon Holdings that same year.

But in the main he eschews outside advice, relying on his own astute parsings and analyses of public filings to size up prospective targets. He lodges offers he deems fair to the seller and that will yield what he calls "decent" long-run returns on capital. He brushes off efforts to haggle. And he maneuvers with astonishing speed. Less than 24 hours after he proposed sinking $5 billion into beleaguered Bank of America Corp. in August 2011, BofA's board OK'd the deal. A $5 billion bet on shaky Goldman Sachs at the peak of the financial crisis -- advantageously framed, like the BofA deal, with preferred stock and warrants that virtually ensured Berkshire a plump return -- came together in a 10 to 20 minute phone conversation with Trott. Buffett, Trott later recalled, wanted a fast decision because he'd promised to take his grandkids to Dairy Queen later that day.

Alacrity doesn't denote rashness. Misfires over the years have been few. Buffett stems his risk by investing in fundamentally sturdy, often dominant franchises in industries he understands, and in companies that, as he puts it, have "moats" to shield them from serious competition. Beyond vetting the filings, he often limits his inquiries to brief sit-downs with a target company's managers in Omaha.

"I've never seen anything like it," said Michael Fisch, CEO of private equity firm American Securities LLC, which sold an agricultural equipment maker, CTB International Corp., to Buffett in 2003. Whereas PE firms typically put in weeks of due diligence before springing for a deal, Buffett had an hour-and-a-half chat with the managers. "He basically said to them, 'We don't delegate, we advocate. If you can't run the business without help, I don't want to invest. But if you can, then I'm interested.' "

Another stark contrast with the PE set is Buffett's investment horizon: He virtually never sheds holdings. His hands-off approach and nurturing reputation are powerful lures to sellers, enabling him to cherry-pick. "For the last 20 years Buffett has been like Steven Spielberg -- every good script comes across his desk," an observer told Vanity Fair writer Bethany McLean last year.

Buffett's more recent dealmaking has reinvented Berkshire Hathaway, turning it from a receptacle for stocks into a conglomerate and voracious takeover instrument. He made 85 investments from 2007 to 2011 according to Dealogic, the bulk of them outright acquisitions capped by his $9.9 billion purchase last year of chemicals maker Lubrizol Corp. and the $35.9 billion take-private in 2009 of railroad operator Burlington Northern Santa Fe Corp. (BNSF). Today, only about 15% of his assets are public stock, versus two-thirds 15 years ago.

But Buffett's powers of discrimination are only half the story. What keeps the engine running at high throttle is Berkshire Hathaway's extraordinary power of the purse.

Unlike buyout shops, which tap the loan and junk bond markets for most of their financing, Buffett religiously avoids debt and its attendant risks. Then again, he doesn't much need the stuff. That's thanks to the magic of what Buffett calls his "float" -- the vast amounts of "costless" cash thrown off by Berkshire Hathaway's core insurance operations, chiefly Geico and General Re. The money surges in from insurance premiums that don't have to be paid out until a customer makes a claim. "It's like an interest-free loan, except it's owed to policyholders, and it is out into the future," remarked Bruce Ballentine, an analyst at Moody's Investors Service (in which Berkshire Hathaway has a minority stake).

Berkshire's float -- which reached a record $70 billion at the end of 2011, up from $41 billion nine years earlier -- enables Buffett to self-finance most of his deals. Even when he does layer some debt into a takeover, as he did in BNSF, Berkshire's relatively high AA investment-grade credit rating keeps borrowing costs low.

Berkshire faces challenges. As its cash hoard has ballooned, pressure has built to deploy it in ever-bigger deals to plump Berkshire's earnings and its book value -- Buffett's main performance yardstick. This explains his recent pronouncements that he's on the prowl for big game. "Our elephant gun has been reloaded, and my trigger finger is itchy," Buffett wrote in Berkshire's 2011 letter to shareholders.

That preoccupation apparently has occasioned a shift in routine at Berkshire.

"The popular perception that [Buffett] is a one-man shop is largely accurate. But where it starts to diverge a little is in recent deals" like Lubrizol, observed Stifel, Nicolas & Co. analyst Meyer Shields. "The story there is that Sokol called up bankers and said, 'We need to buy something. Do you have any ideas?' " (Sokol was later pushed out after it emerged that he'd bought Lubrizol shares in advance of the acquisition.)

"As the cash totals have grown, duties that used to rest solely with Buffett have gotten divided up among other people. It's become more of a team effort," Shields noted.

The biggest questions surrounding Berkshire is who will succeed the 82-year-old Buffett, and whether he, or they, can approximate the legend's performance.

Buffett has said his primary duties will be split between a chief executive officer, running the heart of Berkshire's operations and piloting major acquisitions and others to oversee the stock and bond portfolio. Todd Combs and Ted Wechsler are slated to take charge of stocks and bonds, while Berkshire insurance head Ajit Jain is thought to be the prime CEO candidate.

Which is another way of saying that Buffett is irreplaceable.

"Whoever is CEO, he won't be Buffett," Shields said. "I think it's going to be a step down in terms of market perception. That's the flip side of Buffett's track record and iconic status."

Read more: http://pipeline.thedeal.com/tdd/ViewArticle.dl?id=10005777902#ixzz2Cgi64RsMOver the past decade or so, the world's most revered stock picker has transformed his investment platform into a fast-moving takeover juggernaut whose unorthodox methods, coupled with an ability to tap an internal ATM to fund jumbo-sized cash deals, put it in a league of its own. To a remarkable degree, the acquisition vehicle is steered in nearly every particular by a single man -- the octogenarian from Omaha who built it.

Perhaps more than any other major corporate dealmaker, Berkshire Hathaway Inc.'s Warren Buffett is his own agent and appraiser, longtime observers say. On occasion, it's true that bankers he trusts, notably Byron Trott, a former managing director at Goldman Sachs, have helped midwife Berkshire deals, such as its $23 billion Wm. Wrigley Jr. Co. purchase in partnership with Mars Inc. in 2008, or the $4.5 billion acquisition of Marmon Holdings that same year.

But in the main he eschews outside advice, relying on his own astute parsings and analyses of public filings to size up prospective targets. He lodges offers he deems fair to the seller and that will yield what he calls "decent" long-run returns on capital. He brushes off efforts to haggle. And he maneuvers with astonishing speed. Less than 24 hours after he proposed sinking $5 billion into beleaguered Bank of America Corp. in August 2011, BofA's board OK'd the deal. A $5 billion bet on shaky Goldman Sachs at the peak of the financial crisis -- advantageously framed, like the BofA deal, with preferred stock and warrants that virtually ensured Berkshire a plump return -- came together in a 10 to 20 minute phone conversation with Trott. Buffett, Trott later recalled, wanted a fast decision because he'd promised to take his grandkids to Dairy Queen later that day.

Alacrity doesn't denote rashness. Misfires over the years have been few. Buffett stems his risk by investing in fundamentally sturdy, often dominant franchises in industries he understands, and in companies that, as he puts it, have "moats" to shield them from serious competition. Beyond vetting the filings, he often limits his inquiries to brief sit-downs with a target company's managers in Omaha.

"I've never seen anything like it," said Michael Fisch, CEO of private equity firm American Securities LLC, which sold an agricultural equipment maker, CTB International Corp., to Buffett in 2003. Whereas PE firms typically put in weeks of due diligence before springing for a deal, Buffett had an hour-and-a-half chat with the managers. "He basically said to them, 'We don't delegate, we advocate. If you can't run the business without help, I don't want to invest. But if you can, then I'm interested.' "

Another stark contrast with the PE set is Buffett's investment horizon: He virtually never sheds holdings. His hands-off approach and nurturing reputation are powerful lures to sellers, enabling him to cherry-pick. "For the last 20 years Buffett has been like Steven Spielberg -- every good script comes across his desk," an observer told Vanity Fair writer Bethany McLean last year.

Buffett's more recent dealmaking has reinvented Berkshire Hathaway, turning it from a receptacle for stocks into a conglomerate and voracious takeover instrument. He made 85 investments from 2007 to 2011 according to Dealogic, the bulk of them outright acquisitions capped by his $9.9 billion purchase last year of chemicals maker Lubrizol Corp. and the $35.9 billion take-private in 2009 of railroad operator Burlington Northern Santa Fe Corp. (BNSF). Today, only about 15% of his assets are public stock, versus two-thirds 15 years ago.

But Buffett's powers of discrimination are only half the story. What keeps the engine running at high throttle is Berkshire Hathaway's extraordinary power of the purse.
Unlike buyout shops, which tap the loan and junk bond markets for most of their financing, Buffett religiously avoids debt and its attendant risks. Then again, he doesn't much need the stuff. That's thanks to the magic of what Buffett calls his "float" -- the vast amounts of "costless" cash thrown off by Berkshire Hathaway's core insurance operations, chiefly Geico and General Re. The money surges in from insurance premiums that don't have to be paid out until a customer makes a claim. "It's like an interest-free loan, except it's owed to policyholders, and it is out into the future," remarked Bruce Ballentine, an analyst at Moody's Investors Service (in which Berkshire Hathaway has a minority stake).

Berkshire's float -- which reached a record $70 billion at the end of 2011, up from $41 billion nine years earlier -- enables Buffett to self-finance most of his deals. Even when he does layer some debt into a takeover, as he did in BNSF, Berkshire's relatively high AA investment-grade credit rating keeps borrowing costs low.

Berkshire faces challenges. As its cash hoard has ballooned, pressure has built to deploy it in ever-bigger deals to plump Berkshire's earnings and its book value -- Buffett's main performance yardstick. This explains his recent pronouncements that he's on the prowl for big game. "Our elephant gun has been reloaded, and my trigger finger is itchy," Buffett wrote in Berkshire's 2011 letter to shareholders.

That preoccupation apparently has occasioned a shift in routine at Berkshire.

"The popular perception that [Buffett] is a one-man shop is largely accurate. But where it starts to diverge a little is in recent deals" like Lubrizol, observed Stifel, Nicolas & Co. analyst Meyer Shields. "The story there is that Sokol called up bankers and said, 'We need to buy something. Do you have any ideas?' " (Sokol was later pushed out after it emerged that he'd bought Lubrizol shares in advance of the acquisition.)

"As the cash totals have grown, duties that used to rest solely with Buffett have gotten divided up among other people. It's become more of a team effort," Shields noted.
The biggest questions surrounding Berkshire is who will succeed the 82-year-old Buffett, and whether he, or they, can approximate the legend's performance.

Buffett has said his primary duties will be split between a chief executive officer, running the heart of Berkshire's operations and piloting major acquisitions and others to oversee the stock and bond portfolio. Todd Combs and Ted Wechsler are slated to take charge of stocks and bonds, while Berkshire insurance head Ajit Jain is thought to be the prime CEO candidate.

Which is another way of saying that Buffett is irreplaceable.

"Whoever is CEO, he won't be Buffett," Shields said. "I think it's going to be a step down in terms of market perception. That's the flip side of Buffett's track record and iconic status."Over the past decade or so, the world's most revered stock picker has transformed his investment platform into a fast-moving takeover juggernaut whose unorthodox methods, coupled with an ability to tap an internal ATM to fund jumbo-sized cash deals, put it in a league of its own. To a remarkable degree, the acquisition vehicle is steered in nearly every particular by a single man -- the octogenarian from Omaha who built it.

Perhaps more than any other major corporate dealmaker, Berkshire Hathaway Inc.'s Warren Buffett is his own agent and appraiser, longtime observers say. On occasion, it's true that bankers he trusts, notably Byron Trott, a former managing director at Goldman Sachs, have helped midwife Berkshire deals, such as its $23 billion Wm. Wrigley Jr. Co. purchase in partnership with Mars Inc. in 2008, or the $4.5 billion acquisition of Marmon Holdings that same year.

But in the main he eschews outside advice, relying on his own astute parsings and analyses of public filings to size up prospective targets. He lodges offers he deems fair to the seller and that will yield what he calls "decent" long-run returns on capital. He brushes off efforts to haggle. And he maneuvers with astonishing speed. Less than 24 hours after he proposed sinking $5 billion into beleaguered Bank of America Corp. in August 2011, BofA's board OK'd the deal. A $5 billion bet on shaky Goldman Sachs at the peak of the financial crisis -- advantageously framed, like the BofA deal, with preferred stock and warrants that virtually ensured Berkshire a plump return -- came together in a 10 to 20 minute phone conversation with Trott. Buffett, Trott later recalled, wanted a fast decision because he'd promised to take his grandkids to Dairy Queen later that day.

Alacrity doesn't denote rashness. Misfires over the years have been few. Buffett stems his risk by investing in fundamentally sturdy, often dominant franchises in industries he understands, and in companies that, as he puts it, have "moats" to shield them from serious competition. Beyond vetting the filings, he often limits his inquiries to brief sit-downs with a target company's managers in Omaha.

"I've never seen anything like it," said Michael Fisch, CEO of private equity firm American Securities LLC, which sold an agricultural equipment maker, CTB International Corp., to Buffett in 2003. Whereas PE firms typically put in weeks of due diligence before springing for a deal, Buffett had an hour-and-a-half chat with the managers. "He basically said to them, 'We don't delegate, we advocate. If you can't run the business without help, I don't want to invest. But if you can, then I'm interested.' "

Another stark contrast with the PE set is Buffett's investment horizon: He virtually never sheds holdings. His hands-off approach and nurturing reputation are powerful lures to sellers, enabling him to cherry-pick. "For the last 20 years Buffett has been like Steven Spielberg -- every good script comes across his desk," an observer told Vanity Fair writer Bethany McLean last year.

Buffett's more recent dealmaking has reinvented Berkshire Hathaway, turning it from a receptacle for stocks into a conglomerate and voracious takeover instrument. He made 85 investments from 2007 to 2011 according to Dealogic, the bulk of them outright acquisitions capped by his $9.9 billion purchase last year of chemicals maker Lubrizol Corp. and the $35.9 billion take-private in 2009 of railroad operator Burlington Northern Santa Fe Corp. (BNSF). Today, only about 15% of his assets are public stock, versus two-thirds 15 years ago.

But Buffett's powers of discrimination are only half the story. What keeps the engine running at high throttle is Berkshire Hathaway's extraordinary power of the purse.
Unlike buyout shops, which tap the loan and junk bond markets for most of their financing, Buffett religiously avoids debt and its attendant risks. Then again, he doesn't much need the stuff. That's thanks to the magic of what Buffett calls his "float" -- the vast amounts of "costless" cash thrown off by Berkshire Hathaway's core insurance operations, chiefly Geico and General Re. The money surges in from insurance premiums that don't have to be paid out until a customer makes a claim. "It's like an interest-free loan, except it's owed to policyholders, and it is out into the future," remarked Bruce Ballentine, an analyst at Moody's Investors Service (in which Berkshire Hathaway has a minority stake).

Berkshire's float -- which reached a record $70 billion at the end of 2011, up from $41 billion nine years earlier -- enables Buffett to self-finance most of his deals. Even when he does layer some debt into a takeover, as he did in BNSF, Berkshire's relatively high AA investment-grade credit rating keeps borrowing costs low.

Berkshire faces challenges. As its cash hoard has ballooned, pressure has built to deploy it in ever-bigger deals to plump Berkshire's earnings and its book value -- Buffett's main performance yardstick. This explains his recent pronouncements that he's on the prowl for big game. "Our elephant gun has been reloaded, and my trigger finger is itchy," Buffett wrote in Berkshire's 2011 letter to shareholders.

That preoccupation apparently has occasioned a shift in routine at Berkshire.

"The popular perception that [Buffett] is a one-man shop is largely accurate. But where it starts to diverge a little is in recent deals" like Lubrizol, observed Stifel, Nicolas & Co. analyst Meyer Shields. "The story there is that Sokol called up bankers and said, 'We need to buy something. Do you have any ideas?' " (Sokol was later pushed out after it emerged that he'd bought Lubrizol shares in advance of the acquisition.)

"As the cash totals have grown, duties that used to rest solely with Buffett have gotten divided up among other people. It's become more of a team effort," Shields noted.
The biggest questions surrounding Berkshire is who will succeed the 82-year-old Buffett, and whether he, or they, can approximate the legend's performance.

Buffett has said his primary duties will be split between a chief executive officer, running the heart of Berkshire's operations and piloting major acquisitions and others to oversee the stock and bond portfolio. Todd Combs and Ted Wechsler are slated to take charge of stocks and bonds, while Berkshire insurance head Ajit Jain is thought to be the prime CEO candidate.

Which is another way of saying that Buffett is irreplaceable.

"Whoever is CEO, he won't be Buffett," Shields said. "I think it's going to be a step down in terms of market perception. That's the flip side of Buffett's track record and iconic status."