Warren Buffett

  • 14 May 2007 at 10:34 AM
  • Chrysler

Daimler’s $650 Million Bar Tab

DaimlerChrysler_Verwaltungsbau_Moehringen.jpgThere’s a lot of talk today about the sale of Chrysler to Cerberus (and Lindsay Campbell’s appearance on the Sopranos, and how Warren Buffett hates animals). Larry Ribstein sees the transaction as a paradigm of the private equity deal (the hound of Hades is putting up $7.4 b “in return for which it is demanding cooperation,” so that it can “clean up contracting problems that are threatening to send an otherwise viable business down the tubes). Rupert Murdoch’s Wall Street Journal notes that Cerberus could effectively cut costs by consolidating Chrysler Financial and GMAC (of which it has a 51% stake). The Journal also adds that Stephen Feinberg, the head of the three-headed dog, is not only a Princeton grad, not only a champion tennis player, not only a paratrooper, but an avid deer hunter (which is important, because men who like to kill animals tend to know what they’re doing, and deer are vastly overpopulated in New Jersey). Finally, the J answers the question that’s been weighing on everyone’s mind, “Did Cerberus have a website last year?” A. No.
The Times quotes Hans-Richard Schmitz, representative of the German Association for the Protection of Shareholders, who weighed in with some not at all breaking news and the go-to metaphor for the deal: “This marriage made in heaven turned out to be a complete failure.” The Gray Lady also has some charts.
Rupert’s other publication, the Post goes where no one else dares go, and reminds everyone that “Sun-drenched billionaire Kirk Kerkorian was shut out of the process despite a late $4.5 billion bid for Chrysler.” (Our emphasis).
But it’s Deal Journal that actually tells us something interesting: by “sale of $7.4 billion,” Daimler actually means “it’s going to cost us $650 million” to get rid its red-headed step-child.

As the release itself explains:
Cerberus is contributing $5 billion into the new company (this does not go to Daimler). And another $1.05 billion goes into the financial business (this, again, does not go to Daimler.) Daimler gets $1.35 billion (but will loan the new company $400 million.)
So Daimler makes about $1 billion then, right? Actually, no.
Like a politician obliquely saying “mistakes were made,” Daimler goes on to say that the restructuring “will give rise to a cash outflow” of $1.6 billion.
In sum, the net outflow will be about $650 million, plus another $878 million of “prepayment compensation”, Daimler says. And that’s how a $7.4 billion windfall actually turns into a bill.

We also like this little exercise in decoding deal-speak because it affirms what Carney said a few months ago about how the only way anyone would take on Chrysler is if they were being paid to do so: “When we called one of our banker friends to ask for a valuation on what GM might pay for Chrysler, he joked that GM might ask Daimler to pay them to take it off their hands.”
A $7.4 Billion Windfall for Daimler. Not! [Deal Journal]
Chrysler going to the dog [Ideoblog]
Buyout Firm Close to Winning Chrysler Bidding [WSJ]
Chrysler Group to Be Sold for $7.4 Billion [NYT]

Warren Buffett Is An Equal Opportunity Genocide Supporter

warren buffett.jpgWe’re speaking, of course, about the Sudanese and salmon, and Buffett’s complacency-nay, his investment in-their death (or at least David Weidner at Market Watch is). Sure, he’s pledged to give away all his money when he dies, and he’s the man who brought us the Cavemen, but underneath all that loving beats a heart made of pure stone and evil. Last week, Berkshire Hathaway shareholders voted against a resolution to reverse the actions of PacifiCorp, a Berkshire subsidiary, that is apparently endangering the salmon population (and lowering the water quality) in the Northwest.
And the buck does not stop with the fish. Buffett’s acolytes also shot down a call to sell Berkshire’s $3.3 billion stake in PetroChina (based in Beijing). According to Weidner, the PC(U) subsidiary in the Sudan pays the government for the right to produce oil there, and those payments “support the Sudanese government and its military efforts.”
Despite being told by shareholder Judith Porter that selling Berkshire’s stake “will send a signal to China and to the Sudan that there are costs for continuing this destruction,” Buffett backed the investment, arguing that it has nothing to do with what’s going on, and that it’s the Chinese government condoning the action in Darfur.
Says Weidner of the development: “Hey, if you could make a few bucks dealing with someone you know is helping hide a serial killer, why say anything? It probably wouldn’t help, right?” Well no one’s going to say yes to that.
Remind us never to introduce Weidner to our friend Grizzley bear. (And Dan Loeb).
Buffett: Give peace a chance, when I’m gone [MarketWatch]
Related: SAB?

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BuffettHendrix.jpg Clogging up O’Hare, Charon to the Midwest, one puddle jumper at a time, over 25,000 people descended upon Omaha this weekend for Berkshire Hathaway’s annual shareholder meeting. Nicknamed the “Woodstock of Capitalism,” Warren Buffet did headline this year’s event with a little ukulele playing (although he didn’t light it on fire afterwards, or play with his teeth).
The meeting is a Berkshire Hathaway portfolio marketing bonanza, with swag galore from the Berkshire companies that do things besides sell insurance (49% of Berkshire Hathaway’s earnings before taxes come from insurance). This means you can get tighty-whities from a Fruit of the Loom booth but probably can’t go speed dating with the Geico cavemen.
Each year, Buffet sits down with his business partner Charlie Munger in a basketball gym and makes Bill Gates jealous during a slow dance fields questions from shareholders. The contentious issue this year – Berkshire Hathaway’s 1.3% stake in PetroChina, which does a lot of business in Sudan. An activist shareholder proposed a motion for the company to divest from PetroChina but shareholders are especially pro-genocide this year. Buffet did comment on the unfortunate circumstances in Sudan and the futility of telling the Chinese government what to do. Other social commentary included a Buffet rant on the “socially revolting” state-sponsored growth of casino gambling.
Like any good summer camp, status at a Berkshire Hathaway shareholder meeting is determined not necessarily by the number of shares you own, but by seniority. From Jeff Matthews’ blog:

In fact, there is a pecking order to the entire affair that will persist all weekend, at each event: an individual’s status is determined by the length of time the person has been attending a Berkshire meeting.

Buffett headlines at Berkshire gathering – [BBC]
At Buffet’s Diversified Berkshire Hathaway, Insurance Still #1 – [Insurance Journal]
Pilgrimage to Omaha, Part I: This is Big – [Jeff Matthews Is Not Making This Up]

Job Application: Berkshire Hathaway

Dear Mr. Buffett… [WSJ]

  • 09 Apr 2007 at 1:35 PM
  • Companies

Bill and Warren At Hooters

Apparently this is a very old story but it’s one that’s news to us: Warren Buffett and Bill Gates eat free at Hooters for life. Last October, the story goes, Warren and Bill had the excellent adventure of hanging out with Berkshire Hathaway’s board of directors at Hooters.
As far as we can tell, this story and the photograph are for real.* Strangely, Warren Buffett does not return our phone calls.**
We’re sorry we didn’t bring this story to you earlier. We’re totally firing the intern we have assigned to monitor the Hooters website.
Oh, and Warren is totally working on the railroads these days, too.
* Editor’s Note: But who knows? It’s amazing what the kids can do with photoshop these days.
**Note to Liz Claman: Put a good word in with Warren for us. We’re not exactly sorry we asked whether he was going to Hell but we don’t think a good inquiry into the damnation of his soul should really get between us. After all, we were good enough to print his response!

World’s Two Richest Men Can Eat for Free at Hooters

warrenbuffettlongtermcapital.jpgWe can’t believe that this is the first time we’ve ever heard this story. The basics are known to everyone. Long Term Capital Management, the now infamous hedge fund started by the real-life characters from Michael Lewis’s Liar’s Poker, collapsed dramatically in a very short period of time when bond spreads moved in an unlikely way against their positions. LTCM was so levered up that its collapse provoked fears that it might “bring down the financial system.” Then-Fed chief Alan Greenspan stepped in to organize a Wall Street bailout of LTCM. It was a scary spectacle for those involved and those merely watching.
Now comes the story that all of this might have been unnecessary. Or at least the meltdown might not have been quite as scary as it was because apparently Warren Buffett was ready to ride to the rescue, scoop up LTCM’s bond positions and save them from the margin call squeeze. Except that Bill Gates had invited him to go on vacation, so the whole thing never got done.
Here’s Jeremy Siegel telling the story:

The LTCM crisis was a ready-made example of Warren’s philosophy of buying firms when the economics was right, yet fear ruled the markets. He noted that “off-the-run” (non-benchmark) government bonds were selling to yield 30 basis points more than the “on-the-run” (benchmark) bonds that were maturing just six months later. He rightly claimed that this made no sense economically.
LTCM had taken a huge leveraged position in these bonds when the spreads were much smaller, but didn’t have the collateral to hold on to it when the spread widened. Buffett quoted John Maynard Keynes, who wrote in 1931 that “The market can stay irrational longer than you can stay solvent.” As the spread widened, Keynes’ dictum became devastatingly relevant for LTCM. But Berkshire, with its huge cash hoard, could withstand the pressure of even more market irrationality before the spread eventually returned to normal.
Unfortunately, Warren was never able to consummate the deal. He had been invited by Bill Gates to vacation in Alaska when the crisis broke and it was hard to negotiate such a deal on a cell phone… “Bill Gates cost me about $3 billion,” he shrugged.

Uhm. Wow. Imagine what would have happened if Citadel’s Ken Griffin had an art museum date when Amaranth faced a similar margin-call, collateral squeeze following Brian Hunter’s misadventures in the natty-gas futures markets. Citadel reportedly lead the charge to buy up Amaranth’s energy trading positions in a move that many credit with helping prevent the “contagion” from the Amaranth meltdown from spreading. I guess we should be glad that gerbils don’t need vacations.
Buffett Wisdom [Yahoo Finance via Marginal Revolution]

Thanks for the Memories: Warren Buffett!

warrenbuffettbirthday.jpgWarren Buffett is probably the most beloved figure in American finance. He is adored by his shareholders, and the annual statements of his company are read like they came from a burning bush with a better sense of humor. The shareholders meeting in Omaha is Woodstock for the financially conservative. And, as we discovered when we started picking on him, his fans lash out at his detractors like members of some cult who are defending their sacred idol.
Which gave us an idea.
Warren Buffett has often used the phrase “there are many ways of getting to heaven” to refer to the idea that there are lots of paths to success. At some point he decided to refer to his decision to donate most of his fortune to a charity founded by his friend Bill Gates as one of the ways of getting into heaven.
So we decided to take him literally. We interviewed a Catholic theologian and a Baptist minister about the various ways of getting in to heaven…sorry, Heaven…and asked whether Buffett had discovered one in the charities of Gates. The answer was not a happy one for the soul of the revered Mr. Buffett.
But what really surprised us was that the Oracle of Omaha responded. He wrote a letter to our Catholic theologian explaining that we had him all wrong. After the jump you can check out Warren Buffett’s letter about why he may not be going to Hell after all.

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carlosslim.jpgIt’s a sad state of affairs when you have to go all the way to Mexico to find an unapologetic, Ayn Rand, Gordon Gekko style wealthy capitalist to pronounce anathema on charity and sing the praises of making money and building business. But that’s where we are. Our guys—Bill Gates and Warren Buffett—are all about giving it away. Carlos Slim? Not a chance.
From the pages of the New York Post Paul Thorp reports:

Carlos Slim, the Mexican tycoon just a hair from being the world’s richest man, scoffed yesterday at Bill Gates and Warren Buffett for “playing Santa Claus” to cure poverty’s ills.
Slim climbed on his meanie soapbox just days after his $49 billion fortune was ranked by Forbes as the third-richest behind that No. 1 Gates and No. 2 Buffett – only a few billion shy from eclipsing them both.
“Poverty isn’t solved with donations,” he said at the unveiling of his own health care initiative. Slim continued that building good businesses do more for society than “going around like Santa Claus.”

Slim: Smart Biz Beats Charity
[New York Post]