Warren Buffett Watch: Oriental Trading's offer for SmileMakers wins out in the end

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Posted: Sunday, February 23, 2014 12:00 am

Oriental Trading Co.’s purchase of SmileMakers, a fellow direct seller of novelty goods, was a small transaction on Berkshire Hathaway Inc.’s scale, but Warren Buffett still weighed in and approved an offer that was, at first, rejected.

When Staples Inc. put SmileMakers up for sale last October, Oriental Trading CEO Sam Taylor told The World-Herald, he put together a presentation, including a price range, for Oriental Trading Chairwoman Tracy Britt Cool to discuss with Buffett, CEO of Berkshire, Oriental Trading’s parent company.

Buffett quickly OK’d a price toward the low end of the range, and Taylor made the offer, which has not been disclosed.

The investment banker who was brokering the deal soon called to say that several private equity funds had bid significantly higher. Taylor’s group was out of the deal even before he got to meet SmileMakers’ managers.

“We were disappointed,” Taylor told me. “We thought that was it. When we value a company, we look for a fair value. We don’t overpay for a business. We coincide completely with Warren’s philosophy.”

But a few days after Thanksgiving, the banker called again. Seems some of the private equity investors had dropped out and the others had lowered their bids to Berkshire’s level or below. Was Oriental Trading still interested?

“Absolutely,” Taylor told him, at the original Buffett-approved price.

More discussions followed, and last week Oriental Trading announced the purchase, to be completed in April. The company, which employs 1,800 in Omaha, is acquiring a company with 135 people that Taylor called a “perfect strategic fit.”

Taylor said he wasn’t surprised that Berkshire’s offer won out. Private equity firms tend to bid high at first but “trade down over time” and end up lower.

While their goal is to buy a company, trim costs and sell it within a few years, Berkshire units like Oriental Trading have no “exit strategy” but rather intend to build up their acquisitions to become permanent contributors to Berkshire.

Staples was looking for a good home for SmileMakers, he said, much like the founders of a successful business want the next owners to husband their creation’s future.

“One of our strengths is that we can move quickly” as a Berkshire company, he said, with no need to get financing or approvals from a long list of executives or committees.

The SmileMakers purchase is considered a “bolt-on” acquisition, adding to an existing Berkshire business rather than becoming a new business division.

It doesn’t meet the multibillion-dollar level of the corporate “elephants” that Buffett has said he is hunting to become part of Berkshire. “We’re wielding our BB gun,” Taylor said.

A recent Wall Street Journal story said Berkshire’s Business Wire division was one of the sources that licensed direct business news feeds to high-frequency stock market traders.

That was enough to end those licensing agreements.

Business Wire CEO Cathy Baron Tamraz issued a statement saying she made the move, “in consultation with” Buffett and after discussions with clients, because the article “may have caused some misperceptions, and that was of deep concern to us.”

The article said some traders have technology that allows them to act more quickly even if the news arrives simultaneously, in effect gaining a valuable edge.

Tamraz said that the licenses gave the traders “absolutely no time advantage” and that Business Wire’s patented delivery network follows the market’s fair disclosure regulation and “disseminates news simultaneously and in real time to all market participants.”

But concerns raised by the article led to ending the “handful” of licenses, she said. “Our most important assets are our reputation and the trust we have earned from our clients and other market participants for more than a half century.”

Investor Discussion Board, a conservative blog, reported that Business Wire also talked with officials in New York Attorney General Eric Schneiderman’s office, which “pushed” the company to end the licensing.

“Business Wire’s decision to voluntarily step forward and stop selling its clients’ information directly to high-speed traders is a tremendous victory for our effort to eliminate advance trading on market-moving information,” Schneiderman said.

Turns out that the book on Nebraska pioneers by Buffett’s cousin Bill is, in fact, for sale.

One source is the Willa Cather Foundation in Red Cloud, Neb., and the other will be this year’s meeting of Berkshire shareholders, May 3 in Omaha.

Bill Buffett said proceeds from the book sale go to the Cather Foundation, which has a special connection to the book because ancestors on his grandmother’s side settled in that region.

The self-published book is titled “Grubbed Stumps — Fixed Fence — Pa To Town.”

Warren Buffett’s son Peter and Peter’s wife, Jennifer, co-chairmen of the Buffett-funded Novo Foundation, wrote an opinion article for a New Delhi-based blog, LiveMint, urging that adolescent girls be “safe, seen and celebrated.”

Despite advances in knowledge and technology, they wrote, society is relentlessly pursuing inequality for women.

“Twice-discriminated, by age and gender, girls worldwide are denied their basic human rights,” they wrote, citing 65million girls worldwide who are not in school, 14 million likely to give birth before age 20 and girls under 15 making up half of the world’s sexual assault victims.

“We knew we had to invest in girls first and foremost because girls, as part of the human family, deserve better,” they wrote. “Girls also hold great potential for their communities, as leaders, artists, mothers, doctors, influencers and engaged members of society.

“Yet today’s girls are born into an unwelcoming world, and adolescence is often the moment when a girl’s potential is irrevocably lost or stolen. The world can no longer ignore our collective responsibility to acknowledge and support the power and contributions of girls.”

The foundation is working to improve girls’ lives, they said: “A girl who stays in school longer, gives birth later and has economic assets beyond her body is the girl who will realize her own potential, break cycles of poverty, and shift power imbalances that fuel exploitation.”

LiveMint is an affiliate of HT Media, which traces its history to Mahatma Gandhi’s Hindustan Times newspaper.

The Omaha World-Herald Co. is owned by Berkshire Hathaway Inc.

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