Business Insight Zone

You may have noticed that I have an analytical crush on Warren Buffett. It arises from the conviction that many investors and executives would be much better served if they copied Bufffett: stop trying to build a better mousetrap and instead make it your business to better understand — and put to use — the current mousetraps at your disposal. Put it another way: nobody ever got rich betting against Warren Buffett.

Now Buffett’s company, Berkshire Hathaway, is buying up most of The Marmon Group, which makes boring, profitable things (mining equipment, industrial materials, Wells Lamont gloves) that will fit in nicely alongside the other boring, profitable things already in the Berkshire portfolio (Acme Bricks, Geico insurance, etc.). More details from the Associated Press:

Berkshire Hathaway Inc., based in Omaha, Neb., said it plans to acquire the remaining 40 percent of Marmon over the next five to six years depending on future earnings of Marmon, according to a statement released Tuesday by both companies.

Marmon is owned by trusts for the benefits of the Pritzker family of Chicago, the family that developed the Hyatt Hotel chain. [...]

Brothers Jay and Robert Pritzker acquired Marmon in 1953 when it was a small manufacturing operation in Ohio, according to the release. In 2002, Jay’s son Tom Pritzker took over as chairman.

“Our transaction was done just the way Jay would have liked it to be done — no consultants or studies,” Buffett said in the statement. “I am pleased that over the next five to six years, we will be partnering and working … in continuing to build Marmon.”

At this point, Buffett must know more about deal-making — or at least company-buying — than 99.99% of all the consultants now drawing breath. He’s had practice.

The Marmon purchase is the sort of deal it’s easy to do when you keep the odd $50 billion in cash sitting around. I have no doubt it will make lots more money, the boring way, for Berkshire in the years to come.

More details in these stories:

–Buffett defends investment in Marmon

Warren Buffett, the billionaire investor, said on Wednesday that his $4.5bn investment in Marmon Holdings, the manufacturing and services group, “could move the needle” at his investment company, Berkshire Hathaway.

He said the industrial conglomerate would account for about 10 per cent of Berkshire’s non-insurance revenues and would also increase the number of employees by about 10 per cent. . . .

Mr Buffett’s description of the deal resembled a frenzied bout of last-minute Christmas shopping. “I first heard about this two weeks ago,” he said. “As Santa was coming down the chimney yesterday we finished the deal.” . . .

[The metaphor is clever enough, but the style of the deal should come as no surprise: Buffett and his lieutenants have so thoroughly honed their decision-making processes that they routinely make large acquisitions in under a week.]

The choice of an industrial company like Marmon is a surprise. Most of the speculation on Mr Buffett’s next move had focused on the troubled financial services sector.

[To me, this says nothing about Buffett's decision, and everything about the danger of trusting the guesses of outside observers. Buffett always looks for the best deal available in industries he understands. Marmon fits that profile. Next week, it may indeed be a financial services company that fits that profile as well.]

–Pritzkers turn page in saga of breakup

If the dissolution of the Pritzker empire were a book, the latest chapter — the sale of industrial conglomerate Marmon Holdings Inc. to investor Warren Buffett’s Berkshire Hathaway Inc. — could provide tantalizing clues to how the crown jewel, the Hyatt hotel chain, might be sold.

While the billionaire family has been grooming Global Hyatt Corp. into an entity that could be taken public, observers now say a private deal may be just as likely.

The Berkshire Hathaway deal, along with earlier transactions, brings the breakup of the Pritzker fortune to nearly the halfway point, easing some of the pressure on family business leader Thomas Pritzker to do a major Hyatt deal right away. The Pritzker family has agreed to split up its fortune among 11 adult cousins by 2011, a decision reached after internal rifts.

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Category: Deals