The Warren Buffett Way took a strange turn late
Long a cautious prowler of corporate
combinations, Buffett announced a big play Friday: the
acquisition of General Re (GRN:NYSE) in an all-stock deal
valued at about $22 billion...
Discussions of the
deal began in May. But talks soon bogged down over
valuations. Buffett said the companies resumed talks when the
Citicorp/Travelers deal came to light. As with most Buffett mergers,
it will remain business as usual at General Re. "My
role will be just as it is with our other
subsidiaries," said Buffett. "I have two jobs. One is to
allocate capital and the other is to keep talented people
motivated so they jump out of bed excited to do business
The one change in the formula
will cause General Re's investment portfolio to be
managed primarily from Berkshire's headquarters in Omaha.
"The capital of General Re will be managed from Omaha,
as it is for our other subsidiaries," said Buffett.
"The day-to-day operational decisions will be made
just as they have been in the past, with a lot of
encouragement from me."
When asked if he the deal had
any negatives for shareholder for Berkshire staff,
Buffett was emphatic. "I don't see any downside
"I think the deal has very good long-term
strategic implications for Berkshire," said Jay Cohen,
insurance analyst at Merrill Lynch who rates General Re
"accumulate." He has no rating on Berkshire. Cohen, however,
sees potential short-term disappointments if the
reinsurance business remains soft. "Premiums have dropped
slightly in General Re's property and casualty reinsurance
business as they are very disciplined operators. While the
access to Berkshire's capital is nice, it may be very
difficult to use it very aggressively in the near term."
Is Buffett a Bull?
Reiterating his broad
market view, Buffett said that he was having trouble
finding many deals in the marketplace. "Right now we
don't have lots of great ideas, we don't even have many
good ideas" he said. "However, in the future we will,
and we will deploy all we can into those good ideas
when we have a chance to do so."
said the purchase of an insurance company should not
signal that he has become bullish on the insurance or
financial services sectors. "General Re is an exceptional
company and this is a great deal," Buffett said. "We are
not excited about the average insurance company and
we're asked to look at lots of them. There are no other
on our dance card."
While Buffett insiders say he is terrified of the
prospects of his death, every major deal Berkshire makes
will be looked at as a possible combination to provide
candidates to succeed him and Munger. However, Buffett said
this deal had no such undertones. "Succession wasn't
even in the back of my mind," Buffett asserted.
"However, it was in the back of the minds of the folks at
General Re. Gen Re wanted to consider fully the question
of management succession at Berkshire over the
years. They were fully satisfied of the stability of
Berkshire [upon my death]. It was as good or better than
anything they could see anywhere else in the world."
When General Re's Ferguson, a spry 55 when compared to
Buffett at 68, was asked if he was a candidate to succeed
Buffett, he said it had never come up. "My job will be to
run General Re and that's all," he said. Ferguson
will become a member of the Berkshire Board of
An Inside Leak
before the market's close, a General Re trade crossed
the tape at $270 a share. However, the exchange
killed the trade and removed it from the tape,
indicating it was done in error. When asked about the
transaction Ferguson indicated the deal had been kept under
wraps as well as any deal he had ever seen. "We were
very silent about the deal until after the close
today," he said. "Both Joe [CFO Joseph Brandon] and I
have watched t
my fav Zappa song was called "you're an
asshole"... The first time I heard it was ALSO the first time
I took LSD <weird night>
Went to "The
Firm" concert in Seattle. Jimmy Page & Paul Rogers.
Cool show... They played in the coliseum, a building
that CAN house up to 20,000 concert goers and there
were only about 3000 people there. It was totally
fucking cool. Just like a private show. Some guy jumped
up on stage and gave Page a big hug. The band walked
off stage for about 45 minutes but no one cared
because we where all stoned.
Steve Miller still
lives in Seattle.
... Led Zeppelin, Pink Floyd, Moody Blues, The
Who... Great trippin' music (especially Floyd).
think you are forgetting maybe... Bad Company, Jethro
Tull, Aerosmith, Steve Miller Band And lets not leave
out Frank Zappa!!! ("Watch out where the huskies go
and don't you eat that yellow snow")
for the off-topic remark, couldn't help it, thought
the seventies got a very bad rap, musically. That
disco crap really screwed up to whole decade.
I don't ever buy anything that he says to buy,
because he is a perennial bear. However, his financial
reporting and books that detail the facts are some of the
best around. It is nice every once in a while to read
something that isn't status quo.
If you're going to listen to Jim Grant, why not
listen to Michael Metz, another of Wall Street's
perrenial bears. Truth is, if you took either of these two
"doomsayers" seriously over the last few years, you have been
whacked pretty good in the old pocketbook--IMHO. Come on,
Benton, I'll bet you really have been listening to these
two, haven't you?
Actually I think you and I are largely in
agreement. The only warning is for short term BRKB (not
BRKA) and now GRN traders who might as one guy wrote
sell the stuff now, get a profit and then go on to
some new adventure like Amazon. I just mean you may
then find (like today) BRKA going down and the
corresponding BRKB and GRN with it at least short term after
the euphoria wears off. My point is that it is not
money in the bank but that is only a loss if you sell
the ship in whatever form (BRKA, BRKB, GRN). One
other note: I don't get (I guess for security reasons
to have the Berkshire in the first place) why anyone
would buy Berkshire and not GRN. But who knows...
"Doc-Even with the crash to it, look at the PE
NEVER - I REPEAT NEVER rely on
the P/E posted on Yahoo. Earnings for 1998 are
estimated @ $1.15 for FY98 and $1.47 for FY99. Divide the
share price ($21) by FY 98 earnings and tell me if it
is even in the same world as Yahoo's posted P/E.
Then do the same for FY 99. Then realize that FY99
estimates represent a 28% increase in EPS vs. a foreard P/E
of 14. So it trades at a 50% discount to its growth
rate while most of the other S & P companies trade at
ridiculous premiums to their single-digit growth-rates.
And yes, I am as long CD as I am BRK.