Warren Buffet goes on an acquisition spree during this downturn

formulacaijing — Wed, 25 Jun 2008 14:11:40 +0000

Warren Buffett Says Sell to Me, Not `Porn Shop,’ as Growth Dips
2008-06-25 00:04 (New York)

By Richard Teitelbaum
June 25 (Bloomberg) — Warren Buffett is in Toronto,
fielding questions from a crowd of 300 executives. One asks what
makes people want to sell their companies to him.
The Berkshire Hathaway Inc. chief executive officer replies
that he tells a prospective seller to think of the company as a
work of art.
“You can sell it to Berkshire, and we’ll put it in the
Metropolitan Museum; it’ll have a wing all by itself; it’ll be
there forever,” he says at the February meeting. “Or you can
sell it to some porn shop operator, and he’ll take the painting
and he’ll make the boobs a little bigger and he’ll stick it up in
the window, and some other guy will come along in a raincoat, and
he’ll buy it.”
Buffett, 77, can afford to throw a little mud on his
competitors in the private equity industry. Wall Street’s
acquisition machine has seized up, while Buffett, in the
valedictory chapter of a career stretching back more than 60
years, is on a buying spree.
He has $35.6 billion in cash to spend, and he’s looking for
companies that he can buy at a reasonable price, that have
experienced managers he trusts, products with strong market
positions or other competitive advantages.
Buffett’s biggest catch so far in 2008 was Marmon Holdings
Inc., a conglomerate owned by Chicago’s Pritzker family. On March
18, Berkshire announced it had bought 60 percent of Marmon from
the Pritzkers for $4.5 billion. Buffett is buying the rest in
increments during the next five to six years.

Needle-Moving Events

In April, he agreed to pay $2.1 billion for an undisclosed
stake in Chicago’s Wm. Wrigley Jr. Co. as part of McLean,
Virginia-based Mars Inc.’s $23 billion purchase of the gum maker.
Buffett, who already owns See’s Candies, is helping to fund the
deal with $4.4 billion in subordinated debt.
“This is the kind of market where you would expect the pace
of Berkshire acquisitions to pick up,” says Keith Trauner,
senior analyst of Fairholme Capital Management LLC in Short
Hills, New Jersey. “In a weaker business environment, sellers
moderate their expectations.”
At the same time, Berkshire is now so big that Buffett is
having a hard time turning acquisitions into growth. Most of
Berkshire’s more than two dozen purchases since 2000 are too
small to have much impact. “The larger the company becomes, the
harder it is to find needle-moving events,” Citigroup Inc.
analyst Joshua Shanker says.
Buffett agrees. “Anyone who thinks we will come close to
repeating our past performance should sell their stock,” Buffett
told investors at Berkshire Hathaway’s annual meeting in May. He
declined to comment for this story.

Affinity for Insurance

The Sage of Omaha, by his own count, now owns 76 companies
outright, a number that rises to about 200 if Marmon’s 125
subsidiaries, which make everything from water treatment gear to
brake drums, are taken into account. Among the Buffett companies
are names familiar to most Americans: Geico car insurance, best
known for the Cockney-accented gecko in its television
commercials; Dairy Queen restaurants; Benjamin Moore paints; and
Fruit of the Loom underwear.
Berkshire also owns 8.6 percent of Coca-Cola Co., 13.1
percent of American Express Co. and 8.8 percent of Wells Fargo &
Co. Those three investments alone amounted nearly $25 billion on
June 24.
Insurance firms dominate the list of Berkshire-owned
companies. Buffett controls a dozen of them — Berkshire Hathaway
Reinsurance, General Re Corp. and Geico Corp. are the biggest –
accounting for 31 percent of Berkshire’s 2007 revenue.
“I would say we have a special affinity for insurance,”
Buffett said at the 2007 annual meeting’s news conference.

Competitive Advantage

One reason is that Buffett loves float — the premiums
collected from policy holders that can be invested at a profit
until claims need to be paid. As of the end of December,
Berkshire had $58.7 billion of float.
In May, an acquisition-minded Buffett took a tour of Europe
– stopping in Germany, Italy, Spain and Switzerland — where the
media and business establishment treated him like a rock star.
“I’m not looking for Pet Rock or Hula Hoop businesses,” he said
at a Frankfurt news conference. “I’m hoping to make big deals,
whether it’s in the United States or Germany or Italy or
Denmark.”
In Europe, Buffett repeatedly praised the company headed by
the man who sat beside him during his European tour, Eitan
Wertheimer, chairman of Tefen, Israel-based Iscar Metalworking
Cos. Buffett bought an 80 percent stake in Iscar, a maker of
metal-cutting tools, in 2006 for $4 billion, his first big
overseas acquisition.
Loyal Customers

A close look at Iscar’s main factory complex in northern
Israel shows why Buffett took an immediate interest when
Wertheimer faxed him a letter declaring that Berkshire would be
an ideal home for Iscar. The company has the “durable
competitive advantage” Buffett told the Europeans he always
looks for. It’s a market leader in the design and production of a
variety of metal-cutting tools.
And Iscar has loyal customers. A disposable tungsten carbide
insert used to slice steel can wear out in 20 minutes or less,
meaning that Iscar must deliver a steady supply of new blades to
every customer that uses them.
Buffett’s purchase of Iscar made the Wertheimers celebrated
billionaires, so it’s no surprise that he receives hundreds of
letters from other entrepreneurs offering to be bought out.
Among those that have made the grade in the past 10 years
are: MidAmerican Energy Holdings Co., which can generate a set
return on equity of 10-11 percent from its regulated utilities;
electronic parts distributor TTI Inc., which has never posted an
annual loss nor laid off an employee; and Business Wire, one of
two companies that dominate the niche of sending news and
financial releases around the world.

Quick Dividends

Becoming a Berkshire company can pay quick dividends. On
June 30, 2005, Berkshire purchased Medical Protective Corp., a
Fort Wayne, Indiana-based malpractice insurer, from General
Electric Co. for $825 million. The next day, Standard & Poor’s
raised the firm’s A financial rating to AAA. “It’s hard to
imagine how MedPro could have done any better than being owned by
Berkshire,” CEO Tim Kenesey, 41, says.
Sometimes the benefit is more subtle. “There’s definitely a
halo effect,” says Steve McKenzie, CEO of Norcross, Georgia-
based Larson-Juhl Inc., a custom picture frame maker Buffett
acquired in 2002 for $223 million. “It’s realized in the higher-
quality recruits we hire and in potential acquisitions’ readiness
to talk to us,” says McKenzie, 46.

Buying on Faith

Buffett often decides to buy a company after what looks like
a cursory examination of its operations. He agreed to purchase
Larson-Juhl after a 90-minute talk with its founder, Craig
Ponzio. During his European tour, Buffett told questioners that
he had bought Iscar without any due diligence and after just a
few days of talks with its top executives, who traveled to the
U.S. three times to meet with Buffett and his investing partner,
Charles Munger.
No one from Berkshire ever stepped inside an Iscar factory
before the deal was done, Buffett says.
“He’s buying on faith, and especially with larger
acquisitions, that’s certainly perilous,” says analyst Chuck
Hamilton, who follows insurance at FTN Midwest Securities Corp.
“If he were to spend $20 billion-$30 billion on a major company,
without due diligence, that would really be cause for
heartburn.”
With a staff of only 19 at Berkshire headquarters in Omaha,
Nebraska’s Kiewit Plaza, Buffett says he won’t buy a company
without management in place that he’s sure of.

Modest Backgrounds

“We have to see it in their eyes,” he said at the May 3
annual meeting, where 31,000 investors converged on Omaha’s Qwest
convention center to hear Buffett and Munger, 84, answer
shareholder questions between mouthfuls of See’s candies.
In the case of Victor Mancinelli, CEO of CTB Inc., a maker
of poultry feeding systems and other agricultural equipment in
Milford, Indiana, Buffett could see it on the balance sheet.
Mancinelli had paid off nearly $80 million in leveraged buyout
and other debt in just three years. Berkshire bought CTB in 2002
for about $180 million.
One quality Buffett firms usually have in common: CEOs from
modest backgrounds, often without Ivy League degrees on their
resumes. Mancinelli’s father was a truck driver, and his mother
was an autoworker.
MidAmerican Chairman David Sokol worked his way through the
University of Nebraska at Omaha as a night manager at a grocery
chain. TTI’s Paul Andrews is a former oil rig roughneck who once
sold Bibles door-to-door. Business Wire’s Cathy Baron Tamraz is a
former taxi driver.

Wagering Billions

Buffett is famous for his lack of pretension. He has honed
the fine art of ukulele playing. He still lives in the Dutch
colonial home he bought for $31,500 with his late first wife,
Susan, in 1958, according to “Of Permanent Value: The Warren
Buffett Story” by Andrew Kilpatrick (self-published, 2008).
When he eats out, it’s often at Gorat’s Steak House on
Center Street in Omaha, where a luncheon steak will set you back
$8.25 – including soup and a side of mostaccioli pasta. Buffett
personally drives visitors to and from the airport. He prefers
Cherry Coke to fine wine and saves money buying it by the case.
Buffett’s just-plain-folks posture is a bit of a feint. His
father, Howard, was an investment banker and a Republican U.S.
congressman. Warren attended the Wharton School of the University
of Pennsylvania and got a master’s degree in economics from
Columbia University.
In terms of the businesses he buys, Buffett never tires of
telling questioners that he invests only in simple,
straightforward industries whose operations he can grasp. Yet he
wagers billions on everything from hedge funds to junk bonds.
Through December, Buffett had made $2.3 billion in pretax
earnings during the past five years on foreign-exchange bets.

Put Options

And as of March, he had tens of billions of dollars riding
on two kinds of derivatives — instruments he dubbed “financial
weapons of mass destruction” in his 2002 letter to shareholders.
The first is a variety of credit-default swap guaranteeing
payment on certain high-yield bonds. Credit-default swaps, which
are contracts to protect against or speculate on default, pay the
buyer face value if a company fails to adhere to its debt
agreements.
Buffett also has sold put options — contracts that provide
the right, but not the obligation, to sell a security, currency
or commodity at a set price within a set period — on four stock
indexes. In his 2007 shareholder letter, Buffett wrote that
because Berkshire holds the cash connected to the derivatives,
there is no risk the parties on the other side of the transaction
won’t pay.

Slow to Sell

Buffett’s investment choices have yielded a conglomerate
that’s profitable in all kinds of weather. Through May,
Berkshire’s Class A stock, which traded on June 24 for $122,700 a
share, has returned an average of 19.3 percent annualized in the
past 20 years, nearly double the 11.2 percent return of the S&P
500 Index. From June 30, 2007, through June 24, Berkshire stock
rose 12.1 percent, while the S&P 500 Index returned a negative
10.8 percent.
As of Feb. 29, Buffett himself owned 28.1 percent of the
combined value of Berkshire’s Class A and B shares, worth $53.44
billion on June 24. Class B shares have 1/30th of the value of
Class A shares’ value and 1/200th of their voting rights.
Buffett could be even richer if he had bent some of his own
rules. For instance, he prides himself on buying and holding
companies forever — and is slow to sell his stocks. That has
cost him and his shareholders’ money. Berkshire’s 8.6 percent
stake in Coca-Cola was worth $17.6 billion when it hit its high
in July 1998. Nearly a decade later, it’s valued at just $10.67
billion – and Buffett hasn’t sold a share.

Underwriting Losses

Buffett has stumbled, most notably in 1998, when he spent
$22 billion in Berkshire stock to buy Stamford, Connecticut-based
General Re, one of the world’s biggest reinsurance companies.
“General Re’s name has stood for quality, integrity and
professionalism in reinsurance,” Buffett wrote in that year’s
shareholder letter. He lauded CEO Ronald Ferguson for his
leadership.
Yet, as Buffett has pointed out in several annual reports
since, the company was selling insurance way too cheaply. From
1999 through 2005, Gen Re ran up a total of $7.69 billion in
underwriting losses. FTN Midwest’s Hamilton estimates that those
losses have been largely offset by investment income.
In 2001, Ferguson stepped down, replaced by executive vice
president Joe Brandon. In that year’s letter, Buffett compared
Brandon to former General Electric CEO Jack Welch. “He is smart,
energetic, hands-on,” Buffett wrote.

`A Sinkhole’

In 2006, prosecutors accused Ferguson, former CFO Elizabeth
Monrad and two other former General Re executives of helping
American International Group Inc. inflate reserves by writing
sham, no-risk reinsurance contracts beginning in late 2000.
Jurors convicted all four of fraud in February, along with
one former AIG executive. They are still awaiting sentencing. Two
other former Gen Re executives pleaded guilty to their role in
the fraud in 2005.
Buffett was interviewed by prosecutors in connection with
the case. He wasn’t charged with any crime. Brandon, named by
prosecutors as an unindicted co-conspirator, resigned on April
14, and was replaced by Gen Re President Tad Montross.
“It’s been a sinkhole,” Hamilton says. “Buffett’s lost
more than a shred of reputation.”
General Re isn’t Berkshire’s only regulatory entanglement.
Connecticut Attorney General Richard Blumenthal said in May that
he’s investigating whether Moody’s Investors Service, which was
19.6 percent owned by Buffett as of March 31, was guilty of a
conflict of interest when it gave a AAA rating to Berkshire’s new
municipal bond insurance firm.

`Purse Strings’

“It is one symptom of a system rife with possible conflicts
of interest and problematic relationships,” Blumenthal said in a
May 1 interview with Bloomberg News.
Buffett says his company deserves its rating. “If Berkshire
isn’t AAA, I’m not sure what company would be,” he told
Bloomberg Television.
As pressure has grown for Berkshire to spend its cash,
Buffett has been willing to travel farther afield in search of
companies to buy, says David Carr, chief investment officer of
Oak Value Capital Management Inc.
“I think in the past five years, he’s loosened his purse
strings,” Carr says. “There’s nothing off limits as long as he
understands the model.”
Analyst Hamilton says Buffett is finding it hard to
replicate his previous returns. “The returns on equity and
capital are not what they were in years past,” he says.

Intrinsic Value

Berkshire’s growth is slowing. The annual median increase in
per share book value, or net worth, averaged 10.3 percent in the
eight years ended on Dec. 31, 2007, compared with 26.1 percent in
the 1990s and 28.8 percent in the ’80s, according to Citigroup’s
Shanker. He says Buffett is turning Berkshire into a conservative
capital preservation vehicle.
“If you’re interested in capital appreciation, you have to
ask yourself whether Berkshire Hathaway is the right
investment,” Shanker says.
Buffett says there’s only a limited number of good, big
companies for sale at reasonable prices. As he put it in a May
2007 interview with TV host Charlie Rose, “The real goal at
Berkshire is just to keep building more and more earning power
from operating companies.”
What makes Buffett want to buy? He himself says there’s no
secret formula, because each company’s dynamic is unique.
Berkshire is most active when markets go awry and companies’
market capitalizations dip below their true worth — their
“intrinsic value” in Buffett-speak.

`Deal Velocity’

MidAmerican Energy’s Sokol turned to Buffett during the
stock market bubble of 1999. Investors, infatuated with Internet
and technology stocks, were undervaluing the shares of relatively
staid utilities such as Des Moines, Iowa-based MidAmerican, which
looked especially pallid next to booming energy trader Enron
Corp.
“You do two to three deals a year,” Sokol recalls one
analyst telling him. “Your competitors are doing two to three a
month; they have deal velocity.”
Shares of MidAmerican slumped to less than $27 in late 1999
from $42 in ‘97. “The irrational behavior was driving me
crazy,” Sokol says.
What Buffett saw in MidAmerican was a company positioned to
take advantage of utility deregulation and grow through a string
of acquisitions. It now operates regulated utilities in 10
states, plus the U.K. It also owns plants in Australia and the
Philippines. State regulatory commissions typically allow returns
on equity of 10-11 percent.

`A Fool’s Game’

“Warren thinks of our business as a good place to invest
money on a long-term basis,” Sokol says.
Sokol didn’t need to join a long line of company owners
trying to get Buffett’s attention. One investor in MidAmerican
was Walter Scott Jr., a Berkshire director and Buffett friend. He
is chairman emeritus of Omaha-based construction contractor Peter
Kiewit Sons’ Inc.
Scott suggested the meetings that resulted in the sale.
Berkshire paid $1.7 billion for 85 percent of MidAmerican. Sokol,
Scott, now 77, and MidAmerican President Gregory Abel paid some
$310 million for the rest.
Midamerican dips into Berkshire’s till for acquisitions,
while keeping true to Buffett’s reputation for thrift by scooping
up companies on the cheap.
“With regulated assets, overpaying is a fool’s game,”
Sokol says.

Deep Pockets

In 2002, the company paid $450 million for Salt Lake City-
based Kern River Gas Transmission Co. Also in 2002, it bought
Northern Natural Gas Co. from Dynegy Inc. for $928 million.
Dynegy had purchased the pipeline company, now based in Omaha,
less than nine months earlier from a collapsing Enron for $1.5
billion.
“It was a brilliant acquisition,” says Gordon Howald of
Calyon Securities (USA) Inc. “Using standard industry multiples,
we could see these assets worth more than $2 billion in today’s
market.”
Sokol has kept up his buying. He paid $5.1 billion for
PacifiCorp, a Portland, Oregon-based utility, in March 2006. That
month, Berkshire also agreed to give him up to $3.5 billion in
cash for new purchases or other purposes, in exchange for
MidAmerican stock.
NetJets Inc.’s Richard Santulli also had Buffett’s deep
pockets in mind when he made a call to Omaha. The year was 1998,
and his partner, Goldman Sachs Group Inc., which owned 20 percent
of the company, was pushing for a public offering. In 1986,
Santulli had invented the notion of “fractional” jet ownership,
in which individuals and companies buy shares of a private
plane’s flying time in lieu of buying the entire jet.

`25-Year-Old Kids’

By 1998, several other companies, including Montreal-based
Bombardier Inc. and Waltham, Massachusetts-based Raytheon Co.,
had crowded into the field. To keep his dominant market share,
Santulli expanded both the number and variety of aircraft in his
fleet.
Santulli balked at the idea of an IPO for Woodbridge, New
Jersey-based NetJets because going public would subject his
company to the scrutiny of Wall Street analysts. “I wasn’t going
to answer to 25-year-old kids telling me how to run my
business,” he says in his thick Brooklyn accent.
Like Sokol, Santulli had ready access to Buffett, who was a
customer and had told him in the past to give Berkshire a call if
he ever wanted to sell. Less than a week after he made the call,
Buffett picked Santulli up at Omaha’s Eppley Airfield in his Town
Car and took him to his office. “The deal was done in 5 minutes,
maybe 10 minutes,” he says. Berkshire paid about $725 million in
cash and stock.

Expanding to Europe

Berkshire not only bankrolled NetJets’ fleet of Boeings,
Citations and Gulfstreams, it also underwrote the company’s
expansion to Europe. From 2000 to ‘05, NetJets lost $212 million
building up a European fractional jet ownership program. “If I
were public, I would have had to close the European business
down,” Santulli says, adding that today the unit is profitable.
“If I were to sell that business — which of course we’re
not — I would start at more than a billion and go from there,”
he says. According to Jetnet LLC, a Utica, New York-based
research firm, NetJets now has more than 50 percent of the U.S.
fractional jet market and virtually no competition in Europe.
Business Wire’s Tamraz, 54, had no special entree to
Buffett’s office when she faxed him a letter, along with
financial data, in November 2005. Eight days later, her
receptionist buzzed her.
“Warren Buffett’s on line 2,” she said.
“Hello, Mr. Buffett,” Tamraz said, as she scrambled to
find her copy of the letter.
“Call me Warren,” he responded.

Job Security

Tamraz says Buffett asked for more financial information on
New York- and San Francisco-based Business Wire and for an idea
of the price she was asking for the enterprise.
What appealed to Buffett about Business Wire was its
business model, Tamraz says. The firm, founded in 1961, delivers
250,000 news releases a year for 25,000 corporate clients around
the world. In 2007, it had more than $125 million in sales, which
have been growing about 8 percent a year for the past three
years, according to Tamraz.
One reason: Regulation Fair Disclosure, a U.S. Securities
and Exchange Commission rule implemented in October 2000 that
requires companies to disclose market-moving information to all
investors simultaneously.
Tamraz is thrifty. She has no secretary and decorates her
office with posters. She’s been known to pitch in to format press
releases when earnings season picks up. Another feature Buffett
liked is that Business Wire has only one significant rival,
London-based United Business Media Plc’s PR Newswire, which had
an operating margin of 35 percent in 2007.

`Cheap Parts’

Tamraz had spent four years trying to sell her business. No
private equity or media firm would agree to her roster of
demands, including job security for her 500 employees and a free
hand to run the company. Two weeks after she talked to him,
Buffett agreed to all of her conditions. The price he paid was
“more than several hundred million dollars,” Tamraz says.
Fort Worth, Texas-based TTI, which Buffett bought in 2007,
is also in the distribution business. It buys components that are
used in an array of electronic devices and sells them to
manufacturers around the world. “We sell cheap parts better than
anyone,” CEO Andrews declares in his Texas drawl, before
correcting himself: “We sell inexpensive parts better than
anyone.”

No Losses

TTI has carved out a niche in so-called passive components
– connectors, capacitors and resistors. They sell for an average
of less than 4 cents each. With 2007 revenue of $1.4 billion, TTI
operates in an industry with thin margins. Everything about TTI
is low cost: Its Spartan headquarters is tucked inside a 276,000-
square-foot (25,600-square-meter) warehouse.
Andrews, 65, started TTI in his living room in 1971 after
being laid off from a purchasing job at General Dynamics Corp.
Over the years, he plowed profits back into inventory and rode
out the cycles of the electronics industry that forced many
rivals to sell or fold. Andrews says TTI has never posted an
annual loss and has never laid off an employee.
Today, TTI’s inventory is enormous. An Apple iPod may have
about 500 components, and TTI says it stocks 450 of them. All
told, the company sells more than a million different kinds of
parts. TTI buys them from manufacturers such as Malvern,
Pennsylvania-based Vishay Intertechnology Inc. and Greenville,
South Carolina-based Kemet Corp. “When you come down to it, they
are an extension of our sales force,” Kemet CEO Per-Olof Loof
says.

Hamburgers and Cokes

Receiving, “picking” and packaging orders at TTI is
largely automated. For high-volume items, automatic lifts pluck
the appropriate bar-coded part — say, a reel of capacitors –
from a revolving carousel and send it off on a conveyor to be
combined with the balance of the order. Given the company’s low-
priced goods, any error in the process will eat up TTI’s profits.
Andrews got his foot in Berkshire’s door through John Roach,
a friend of Andrews’s who had sold Justin Industries Inc., a Fort
Worth building supply maker, to Berkshire in 2000 for $600
million. Roach overnighted TTI’s 3-inch (7.6-centimeter) thick
book of financial information to Buffett and set up a meeting.
Andrews arrived with Roach at Buffett’s offices at 10 a.m.
on Nov. 15, 2006, for a scheduled two-hour meeting. It lasted
twice as long, with Buffett peppering Andrews with questions
about his business and family. Buffett treated his visitors to
hamburgers and Cokes at a country club, and then they returned to
his office.
“Warren made an offer, and Paul made a quick response,”
says Roach.
“OK, let’s do it,” Buffett said and called in CFO Marc
Hamburg to work out the details. The price wasn’t disclosed.

Katyusha Rockets

Andrews agreed to stay at TTI for at least three years.
“There’s nothing in writing, except a handshake and a
gentleman’s agreement that I’m going to be here to do what I said
I was going to do,” he says.
One reason Andrews says he sold to Buffett was he had no
desire to see his company loaded with debt by a private equity
firm or gutted by a cost-cutting rival. Iscar’s Wertheimer, 56,
had the same notion. “We are very proud of what we’ve built,”
he says. “We want it to continue.”
In buying an Israeli company, Buffett took on the kind of
geopolitical risk he’s accustomed to as an insurer. Within days
after the deal closed in July 2006, fighting broke out between
Israel and the Shiite Hezbollah group that dominates southern
Lebanon.
Wertheimer called Buffett to tell him that Katyusha rockets
were slamming into the sun-baked hills around his plants and
there was a chance his machinery would be damaged and that his
employees would lose workdays.

20-Year Perspective

“I’m not interested in what happens next quarter,”
Wertheimer says Buffett told him. “I’m interested in the next 20
years.” Some of Wertheimer’s staff did move south while the
rockets were falling. Iscar didn’t miss a shipment.
Wertheimer says that in the eight months and three face-to-
face visits leading up to the Iscar deal, he and the Omaha
investor had wide-ranging discussions about everything from
philanthropy to “how to look on life,” in Wertheimer’s words.
At one point, Buffett sent him a biography of the Jewish-American
educator Abraham Flexner, who helped found the Institute for
Advanced Study in Princeton, New Jersey. Both Buffett and
Wertheimer have a longstanding interest in education.
“I love talking to him,” Wertheimer says. “For me, he’s a
teacher.”
Wertheimer took over as CEO of Iscar in 1984, when his
father, Stef, now 81, who founded the company after fleeing Nazi
Germany, was injured in a car accident.

Jews, Arabs and Druse

He transformed it from a local exporter of metal-cutting
tools into an international enterprise with 7,500 employees,
plants from Barcelona to Bangkok and more than $1 billion in 2007
sales. In 1995, he turned over the CEO position to his colleague,
Jacob Harpaz, 57.
“I was just getting in Jacob’s way, so I fired myself,”
says Wertheimer, who remains chairman.
On a rainy day in March, Wertheimer leads a tour through
some of the 20 buildings that comprise the company’s hillside
campus. The company’s Israeli workers are a combination of Jews,
Arabs and Druse, many of whom Wertheimer greets by name.
Iscar’s tools are used by makers of cars, appliances and
other durable goods to cut metal to exacting specifications. The
inserts, as they’re called, sell for anywhere from a few dollars
to more than $100 each. Teams of Iscar designers are at work
every day looking for ways to make them cut faster and more
efficiently.

Sharper Tools

One customer is Bolton, Ontario-based Husky Injection
Molding Systems Ltd. In April, manufacturing engineer Noel Pinto
was looking for a way to improve the milling of the steel plates
Husky makes at its Milton, Vermont plant. They are used in
plastic bottle manufacturing, among other processes. Iscar’s
Thomas Raun devised a new tooling process, improving the speed of
the operation by 40 percent.
“They find ways to implement new technology,” says Pinto.
Wertheimer says he’s very comfortable linking up with
Buffett. “Warren has a message to the world,” he says. “It’s
balance.” He points with his index finger to his head, to his
heart and finally to his wallet. “And he does it in a fair,
clean and nice way,” he says.
One of the companies Buffett owns is expected to yield a new
Berkshire top executive if the Omaha investor passes from the
scene anytime soon. Buffett updates shareholders regularly on the
subject of succession and did again at the annual meeting in May.
Berkshire’s board, he said, has identified three candidates with
the qualifications to succeed him as CEO, and one has been
selected.

`Nobody Replaces Warren’

Analysts, including Citigroup’s Shanker, say based on their
ages and accomplishments, the most likely candidates are NetJets’
Santulli, 63; MidAmerican’s Sokol, 51; Berkshire Re head Ajit
Jain, 56; and Geico CEO Tony Nicely, 65.
Four money managers have also been selected as candidates to
replace Buffett in his role as chief investor. The board and new
CEO will decide which of those candidates he will work with.
These plans could change if Buffett remains in place for an
extended period, and men like Santulli and Nicely are seen as too
old to don his mantle. The new CEO could end up being the head of
a Berkshire company that has yet to be acquired.
Sokol doesn’t let the issue trouble him. “There is more
than adequate talent to keep the Berkshire Hathaway way of doing
things going forward,” he says. “But nobody replaces Warren
Buffett.”
Buffett treats the issue of his mortality with
characteristic wisecracking humor. One Saturday morning several
months ago, CTB’s Mancinelli says he called Buffett, as he
occasionally does. Buffett asked to call him back, saying he had
an appointment with his barber.
“The way I figure it, I have just so many haircuts left in
my life,” Buffett said. “I don’t want to miss any of them.”

For related news:
Buffett in Europe: STNI BUFFETTINEUROPE
Buyout, LBO News: NI LBO

– Editors: Michael Serrill, Frederic Wiegold. With reporting by
Josh P. Hamilton in New York.

FORMULA 财经

World Economy Has Entered Stagflation, Fidelity Says

Warren Buffet goes on an acquisition spree during this downturn

Analysts: Sell-side and buy-side