Warren Watch: Bidding ‘was close’ in ’83 sale of Nebraska Furniture Mart

Print
Font Size:
Default font size
Larger font size

Posted: Sunday, August 25, 2013 12:00 am

Warren Buffett’s purchase of the Nebraska Furniture Mart 30 years ago almost didn’t happen.

Store founder Rose Blumkin had a competing offer from Ostermann’s, a well-respected German furniture company. She had met Buffett, chairman and CEO of Berkshire Hathaway Inc., only briefly.

“It was close,” said her son, Louie Blumkin, who acted as a partner in the Mart and recounted the decision before his death last February. “She asked, and I said, ‘Sell it to Warren.’ But it was her choice, not mine.”

That decision to sell, at age 89, was family related. “Many, many times when the parents die, the kids fight,” Mrs. B said. “This way, no one will fight.”

In the end, she chose Buffett, saying: “He’s one in a million. I’m proud to be associated with a person with his brains. I give him a price, and we shook hands.”

Buffett, who had just turned 53, accepted the $60 million price tag without an audit or inventory. “I would rather have her word than that of all the Big 8 auditors. It’s like dealing with the Bank of England. ... If she ran a popcorn stand, I’d want to be in business with her.”

Now celebrating the 30th anniversary of the sale, the Mart has expanded to Kansas City, Kan., and is building its biggest retail development in Texas. But it was a single store when the sale was final on Sept. 30, 1983.

The Mart wasn’t the first Omaha business Berkshire had bought, but it woke up many Omahans to Buffett’s little investment company, at the time with $1.6 billion in assets and a stock price of $1,145 a share.

Now with assets approaching $450 billion and a share price past $170,000, Berkshire still looks for the occasional Omaha business to buy, such as last fall’s purchase of Oriental Trading Co.

“If we hadn’t been in Omaha, we would not have ended up with the Omaha companies we have,” Buffett said in an interview for “The Oracle & Omaha: How Warren Buffett and His Hometown Shaped Each Other.”

When a business proposes selling to Berkshire, he said, “I give them an extra point for being in Omaha.”

Limited role in Heinz

Employees often cheer when their company is bought by Berkshire, but not the 350 people whose jobs are ending at H.J. Heinz Co. in Pittsburgh and 250 in the United Kingdom.

The food maker was purchased in June for $28.75 billion, a 50-50 deal by Berkshire and Brazilian investment company 3G Capital.

Buffett has said from the start that 3G would operate Heinz. The new CEO named by 3G, Bernardo Hees, made similar headquarters job cuts when he headed Burger King for 3G.

The Pittsburgh Post-Gazette reported last week that local employment by Heinz apparently peaked at about 2,600 people in the 1980s, before the company sold off its manufacturing plant in the North Side neighborhood where the company was founded.

The latest cuts leave about 800 Pittsburgh workers, out of 32,000 companywide, including 2,500 in the U.K. The company said it would keep its connections with the National Football League’s Steelers, who play on Heinz Field.

Pittsburgh also is home to the Heinz 57 Center office building, the Heinz Hall concert venue, the Heinz History Center, the Sarah Heinz House learning center, Heinz Chapel and Carnegie Mellon University’s H. John Heinz III College, all reflecting the company’s long history in Pittsburgh and the “Dutchtown” neighborhood where it started.

Buffett has pointed out that while Berkshire holds onto businesses it acquires, many investment groups have an “exit strategy,” selling off a business after a period of time and making another purchase.

His buyout pitch to owners of a private company includes a pledge to let them run the business as though they still owned it. Not so with Heinz; Berkshire’s role was strictly supplying cash, leaving Heinz open to 3G’s corporate restructuring.

In the Post-Gazette article, Michale Mullen, senior vice president of corporate and government affairs, said, “Heinz will remain headquartered in Pittsburgh, demonstrating the company’s commitment to the region. We look forward to continuing to call Pittsburgh our home as it has been for 144 years.”

The story, by Theresa F. Lindeman, continued, “It isn’t entirely clear how long that promise is good for, and some employees speculate that after a respectable number of years, all bets could be off.”

Investing in Alberta fields

Sometimes Buffett’s deals happen quickly — a letter, a phone call, a meeting, a handshake.

Other times, the byword is patience.

Five years ago this month, Buffett toured the oil-sand fields in Alberta, Canada, along with Microsoft co-founder Bill Gates, Omaha businessman Walter Scott Jr. and Omahan David Sokol, who headed Berkshire’s energy division at the time.

They went to learn the economics of a new source of petroleum, a region holding an estimated 250 billion barrels.

Sokol, who later returned to the region several times, seemed at the time to indicate Berkshire didn’t plan to invest in oil sands: “That’s not an area we have particular expertise in.”

Yet he explained that at the right price, it’s economical to dig up that gummy sand in an open-pit mine, “cook” it to melt the crude bitumen away from the sand and ship it to refineries. Or producers can inject steam underground and pump out the fluid.

Either way, the Alberta fields held promise as a future source of petroleum, he said. “It is an important thing to be knowledgeable about, because of the impact it could have on the supply-demand balance going forward.”

Fast-forward to June 30, 2013, and Berkshire has bought $524 million worth of stock in Suncor Energy Inc., the Calgary, Canada, producer of heavy oil in the region toured in 2008. It’s the only Canadian stock listed among Berkshire’s investments in last week’s official stock-holdings report.

It wasn’t immediately clear whether Buffett or one of Berkshire’s other money managers, Todd Combs and Ted Weschler, made the Suncor investment decision. Buffett has said he makes the big-money decisions, but Combs and Weschler have been directing larger amounts of money lately.

Some analysts had said Suncor’s stock price was less than its true value. Since Berkshire disclosed its holdings, the price has gained 4.9 percent, closing Friday at $34.31 per share. That’s a paper gain of $28 million for Berkshire’s 17.8 million shares. Since June 30, the price is up 16.3 percent, or $86 million.

He cited Berkshire subsidiary BNSF Railway’s hauling of material used in fracking petroleum deposits and of oil produced through the controversial process, as well as coal-fired electrical plants operated by Berkshire’s MidAmerican Energy subsidiary.

Horn called the dealings “a win-win for Buffett and a lose-lose for the ecosystem and the climate.”

Buffett has spoken briefly about climate change, most recently when a questioner at Berkshire’s 2013 shareholders meeting asked about the impact of global warming on Berkshire’s insurance business.

“The climate is getting warmer, ” he said then. “My general feeling is there is a reasonable chance that people who are worried about warming are right. But I don’t know enough to speak as an expert.”

He also has spoken favorably about the outlook for Berkshire’s energy-related businesses, including BNSF Railway’s increased hauling of oil and coal, but later said that coal would gradually decline as an energy source.

Big money from bank

Buffett hosted Bank of America CEO Brian Moynihan for supper at Omaha’s Happy Hollow Country Club earlier this month, discussing the economy, banking and Berkshire’s $5 billion investment in B of A, according to CNBC.

It was Buffett’s treat, a dinner bill well within the profits Berkshire is making. The investment value has doubled since August 2011 and brings in $300 million a year in preferred dividends over 10 years, unless Bank of America pays extra to buy back the shares early.

The big money comes from warrants that let Berkshire buy shares at a discount to today’s price, a $5 billion paper profit.

Mark Calvey noted in the San Francisco Business Times that, earlier, Buffett had praised Moynihan for “doing exactly the right things in terms of correcting problems.” The bank had been sued for fraud by the federal government for selling faulty mortgaged-backed securities.

“Buffett is said to have hatched the idea of investing in California’s largest bank while taking a bath,” Calvey wrote. “But given the lucrative terms Buffett demanded, I said at the time that the bank’s shareholders might wonder who took a bath.”

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

Copyright ©2014 Omaha World-Herald. All rights reserved. This material may not be published, broadcast, rewritten, displayed or redistributed for any purpose without permission from the Omaha World-Herald. To purchase rights to republish this article, please contact The World-Herald Store.


loading...

SPOTLIGHT »

Inside Business
To submit an announcement for "Inside Business", click here. For questions call (402) 444-1371 or e-mail announcements@owh.com.

World-Herald Alerts

Want to get World-Herald stories sent directly to your home or work computer? Sign up for Omaha.com's News Alerts and you will receive e-mails with the day's top stories.