Berkshire Hathaway will pay $4.5 billion to buy 60 percent of the privately-held industrial conglomerate Marmon Holdings from the Pritzker family of Chicago, in its biggest purchase ever outside of the insurance industry. Berkshire will pay the remaining 40 percent over the next five or six years. That price will be based on how well the company does over that time period.
In many ways, it's a textbook Warren Buffett deal:
Buffett zigged, when everyone expected him to zag. We've been hearing for months now how Buffett might be interested in this bank, or that insurance company, or some other troubled firm that had become a "bargain" due to the subprime meltdown. That kind of deal may still be coming, but it's not this one. Marmon has the kind of basic industrial companies that Buffett traditionally likes and understands. They make things like railroad tank cars and electrical cable, businesses that are expensive for competitors to get into. (See Why 'Durable Competitive Advantage Matters.) And the Pritzker family is selling not because of bad times, but as a way to split up the family business among the founder's heirs who now want more independence.
Buffett did the deal very quickly and efficiently. He tells the Wall Street Journal that the whole transaction took just two weeks. He was first approached by a Goldman Sachs banker about a possible deal for Marmon earlier this month when he was in San Francisco for his second Hillary Clinton fund-raiser of the year. Marmon Chairman Thomas Pritzker tells the New York Times, "The next morning, we delivered a phone book-size document describing Marmon, literally at his plane. He read it on the plane going back to Omaha. He landed and called the Goldman guy and said: 'Tell Tom we have a deal.'" As Buffett puts it in a news release posted on Marmon's website, "No consultants or studies."
Buffett is doing business with people he instinctively likes. Buffett told ushe decided to pay $4 billion for most of the Israeli toolmaker Iscar after receiving a letter "from a man I didn't know about a company I'd never heard of and it was a page and a quarter long and it just jumped off the page that these were the kind of people I'd want to be associated with and the kind of company." Buffett tells the Journal that after meeting Marmon's top managers, "I liked them. They were my kind of guys. I knew I'd be very comfortable." Marmon's Pritzker tells the Times the feeling is mutual, which is especially useful because they'll be partners for the five or six years it takes for Berkshire to buy all of Marmon: "This is a marriage, not a sale."
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