Berkshire's Buffett on Succession, Acquisitions


Berkshire Hathaway , the insurance and investment company run by Warren Buffett, has been preparing succession plans for when the 77-year-old billionaire steps down.

Warren Buffett

It also still hunts for acquisitions, preferably large.

In December, Berkshire agreed to spend $4.5 billion for a 60 percent stake in Marmon Holdings, which makes railroad tank cars, plumbing pipes, metal fasteners, and wiring and water treatment products used in residential construction.

On April 28, it announced a $6.5 billion investment, including $2.1 billion of equity, tied to M&M's maker Mars' purchase of chewing gum company Wm Wrigley Jr .

The following information about Buffett's succession plans and Berkshire's acquisition strategy is drawn from the company's 2007 annual report:

Buffett on his Potential Successors:

"We have for some time been well-prepared for CEO succession because we have three outstanding internal candidates. The board knows exactly whom it would pick if I were to become unavailable, either because of death or diminishing abilities. And that would still leave the board with two backups.

"We have indeed now identified four candidates who could succeed me in managing investments. All manage substantial sums currently, and all have indicated a strong interest in coming to Berkshire if called. The board knows the strengths of the four and would expect to hire one or more if the need arises.

The candidates are young to middle-aged, well-to-do to rich, and all wish to work for Berkshire for reasons that go beyond compensation."

Acquisition Criteria:

"We are eager to hear from principals or their representatives about businesses that meet all of the following criteria:

  1. Large purchases (at least $75 million of pretax earnings unless the business will fit into one of our existing units),
  2. Demonstrated consistent earning power (future projections are of no interest to us, nor are 'turnaround' situations),
  3. Businesses earning good returns on equity while employing little or no debt,
  4. Management in place (we can't supply it),
  5. Simple businesses (if there's lots of technology, we won't understand it),
  6. An offering price (we don't want to waste our time or that of the seller by talking, even preliminarily, about a transaction when price is unknown).

"The larger the company, the greater will be our interest: We would like to make an acquisition in the $5-20 billion range.... We will not engage in unfriendly takeovers.... We prefer to buy for cash, but will consider issuing stock when we receive as much in intrinsic business value as we give."