When Warren Buffett started his first partnership more than 50 years ago, he never dreamed he would wind up putting together a wildly diverse collection of businesses under one corporate umbrella. Originally, Buffett set up a series of partnerships with family and friends to pool cash for buying big blocks of stock in companies he had researched. Not all of Buffett's stock picks paid off, but many were so successful that Buffett quickly earned a worldwide reputation for savvy investing. Always looking for a good investment, Buffett turned his attention to the prospects of Berkshire Hathaway, a struggling textile manufacturer based in New Bedford, Massachusetts. Seeing value in the company's heritage and its plans for making synthetic fibers, Buffett began buying its stock. Once he controlled the mills, Buffett put one of Berkshire Hathaway's executives in charge.
This was Buffett's pattern over and over as he built a conglomerate by adding to his company's portfolio of businesses. He provided the financial backing, but he didn't meddle in the dayto-day management decisions of the corporations he purchased. Berkshire Hathaway became the corporate vehicle through which Buffett acquired a variety of companies. In the early days, he pursued insurance firms, banks, and publishing companies. He continued buying year after year, adding See's Candies to his conglomerate and, later, GEICO insurance, sticking to his tried-and-true formula of investing in companies with long-term profit potential and strong competitive positions. Living in Omaha, Buffett couldn't help but notice the success of the Nebraska Furniture Mart, a superstore that annually sold $100 million worth of furniture.
The family-owned business was a fierce competitor and a major regional power in furniture retailing. Although Buffett had tried, unsuccessfully, to buy the store, he never gave up. During the 1980s, he again approached the retailer. This time he pointed out all the financial benefits of being part of Berkshire Hathaway and emphasized his hands-off approach to ownership. Berkshire Hathaway won the deal. Today Berkshire Hathaway has more than six dozen companies in its diverse portfolio. Although it still owns some of the companies it acquired decades ago, the portfolio has changed a bit over the years. GEICO , the third-largest U.S. auto insurance firm, has been a member of the conglomerate since 1996. Berkshire Hathaway also owns the General Re insurance firm. Among the retailing businesses it owns are Jordan Furniture, Star Furniture, Helzberg Diamonds, and the Pampered Chef direct-seller of kitchen tools. In addition, it owns the ice-cream franchising company Dairy Queen; Benjamin Moore paint; Johns Manville building products; and Shaw Industries, which makes tufted broadloom carpeting and distributes other flooring products.
Berkshire Hathaway has expanded into transportation, as well. Its NetJets was a pioneer in offering companies and individuals the opportunity to own a fraction of a private jet, so theycan enjoy the convenience of flying whenever and wherever they want. In 2010, the conglomerate paid $26 billion for Burlington Northern Santa Fe Corp., a railroad that serves western and southwestern states. This acquisition, labeled "brilliant" by a railway competitor because it was completed just as the industry began to rebound from recession, gave Buffett access to years of details about the size, volume, and destination of train shipments. By analyzing this information, Buffett spotted clues that helped him fine-tune his investments.
The annual meeting held by Berkshire Hathaway is unlike any stockholder gathering on Earth. The more-than-35,000 people in attendance spend hours browsing and buying from exhibits set up by the conglomerate's companies. Stockholders are encouraged to bring the details of their car insurance and let GEICO give them quotes on the spot, including a small ownership discount. Nebraska Furniture Mart promotes a special stockholders' weekend of sales, as do other Berkshire Hathaway-owned retailers in the area. The annual meeting is such a high-profile event that it merits coverage by the New York Times, CNBC, and Fortune magazine, among many other major media outlets. What will Berkshire Hathaway's next acquisition target be?
1. Why would Berkshire Hathaway own a number of furniture retailers? Outline the possible advantages and disadvantages.
2. Do you think Berkshire Hathaway should allow stockholders to suggest or vote on potential acquisitions via proxy or at the annual meeting? Why or why not?
3. How much influence are Berkshire Hathaway's stockholders likely to have (or want) over the management of the conglomerate or one of the conglomerate's companies? Explain.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.