Warren Buffett's 22-page annual letter to Berkshire Hathaway Inc. shareholders has not only become a must-read for investors of his company but a valuable resource for dealmakers -- not to mention business journalists. So, what kind of businesses, according to the 77-year-old M&A guru "turns us [Berkshire] on"?
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- "A business we understand"
- "Favorable long-term economics"
- "Able and trustworthy managment"
- "A sensible price tag"
In his letter, Buffett pointed to Berkshire holding -- See's Candy Shops Inc. -- as a shining example of an acquisition that held all those characteristics. Berskshire acquired the unglamorous boxed chocolate maker in 1972 for $25 million, and it had sales of $30 million and pretax earnings of $5 million. Meanwhile, it took $8 million to administer the business. Fast forward to 2007, and Buffett pointed out that See's sales, under the stewardship of the See's family and eventually Berkshire CEO appointees Chuck Huggins and Brad Kinstler, are now $383 million with pretax profits of $82 million. And See's needs $40 million a year to run the business.
Buffett calculates the sum total that Berkshire had to reinvest in See's since the initial acquisition is $32 million to support modest physical growth. Overall, the pretax earnings have totaled $1.35 billion, which Berkshire has used to reinvest in other businesses that would eventually become stakes in Geico, American Express Co., Wells Fargo & Co. and others. "Just as Adam and Eve kick-started an activity that led to six billion humans, See's has given birth to multiple new streams of cash for us," Buffett wrote in his letter. - Gerald Magpily
See Buffett annual shareholder letter
See Dealscape: Goldman Sachs nicknamed Berkshire's Marmon deal 'Indy 500'
See Dealscape: Social Security should give thanks to Bufett's dealmaking
See Dealscape: Buffett may open wallet for $60B in deals
See Dealscape: Marmon armon is Buffett's kind of company
See additional posts about Berkshire Hathaway from Dealscape
See WarrenBuffet.com
Comments
Great post! I also found this WB fan site that seems pretty interesting (www.warren-e-buffett.com)...