Burlington Northern Acquisition
One of the more noteworthy provisions of the Burlington Northern acquisition is that Berkshire will pay with about 40% stock (and 60% cash) for the railroad. Buffett has rarely made acquisitions with Berkshire stock. His self-admitted biggest mistake has been an acquisition with Berkshire stock
In 2007, he wrote:
"Finally, I made an even worse mistake when I said "yes" to Dexter, a shoe business I bought in 1993 for $433 million in Berkshire stock (25,203 shares of A). What I had assessed as durable competitive advantage vanished within a few years. But that's just the beginning: That move made the cost to Berkshire shareholders not $400 million, but rather $3.5 billion. In essence, I gave away 1.6% of a wonderful business-one now valued at $220 billion to buy a worthless business. To date, Dexter is the worst deal I've made."
_____________________________________________
Warren Buffett, 2007 Letter to Berkshire Hathaway Shareholders
Showing posts with label Mistakes. Show all posts
Showing posts with label Mistakes. Show all posts
Tuesday, November 10, 2009
Tuesday, September 22, 2009
Cash vs. Stock Acquisitions
Yesterday morning, it was reported that computer maker Dell will purchase information-technology company Perot Systems for $3.9 billion in cash. Buffett has always strongly preferred cash over stock acquisitions. In fact, he says his worst mistake was the stock acquisition of Dexter, a shoe business.
“From the economic standpoint of the acquiring company, the worst deal of all is a stock-for-stock acquisition. Here, a huge price is often paid without there being any step-up in the tax basis of either the stock of the acquiree or its assets. If the acquired entity is subsequently sold, its owner may owe a large capital gains tax (at a 35% or greater rate), even though the sale may truly be producing a major economic loss”
__________________________________________________
Warren Buffett, 1999 Letter to Berkshire Hathaway Shareholders
"Finally, I made an even worse mistake when I said “yes” to Dexter, a shoe business I bought in 1993 for $433 million in Berkshire stock (25,203 shares of A). What I had assessed as durable competitive advantage vanished within a few years. But that’s just the beginning: 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% 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. But I’ll make more mistakes in the future – youcan 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.”
______________________________________________
Warren Buffett, 2007 Letter to Berkshire Hathaway Shareholders
Yesterday morning, it was reported that computer maker Dell will purchase information-technology company Perot Systems for $3.9 billion in cash. Buffett has always strongly preferred cash over stock acquisitions. In fact, he says his worst mistake was the stock acquisition of Dexter, a shoe business.
“From the economic standpoint of the acquiring company, the worst deal of all is a stock-for-stock acquisition. Here, a huge price is often paid without there being any step-up in the tax basis of either the stock of the acquiree or its assets. If the acquired entity is subsequently sold, its owner may owe a large capital gains tax (at a 35% or greater rate), even though the sale may truly be producing a major economic loss”
__________________________________________________
Warren Buffett, 1999 Letter to Berkshire Hathaway Shareholders
"Finally, I made an even worse mistake when I said “yes” to Dexter, a shoe business I bought in 1993 for $433 million in Berkshire stock (25,203 shares of A). What I had assessed as durable competitive advantage vanished within a few years. But that’s just the beginning: 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% 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. But I’ll make more mistakes in the future – youcan 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.”
______________________________________________
Warren Buffett, 2007 Letter to Berkshire Hathaway Shareholders
Subscribe to:
Posts (Atom)
Posts
