148 THE WARREN BUFFETT WAY
called Omaha’s f irst citizen, Scott was the driving force behind the
city’s zoo, its art museum, the engineering institute, and the Nebraska
Game and Parks Foundation. Scott and Buffett have close personal and
professional connections: Scott sits on Berkshire’s board, and the two
men are only f loors away from each other at Kiewit Plaza.
Even though Buffett knew Scott well and held him in high regard,
he wanted the investment to be fair and transparent, with no question
that the relationship between the two men unduly inf luenced the deal.
So Buffett suggested that O. Mason Hawkins, chairman and chief ex-
ecutive of Southeastern Asset Management, which advises Longleaf
Partners, set up the deal and negotiate the terms.
By mid-June 2003, a year later, Buffett, Legg Mason, and Longleaf
Partners exchanged $500 million for a total of 174 million Level 3 com-
mon shares (including an extra 27 million shares as an incentive to con-
vert). ( Longleaf had already converted $43 million earlier in the year
and then converted the rest, $457 million, in June.)
Buffett received 36.7 million shares. In June, he sold 16.8 million for
$117.6 million, and in November sold an additional 18.3 million shares
for $92.4 million. Sure enough, Level 3 made good on its debt payments,
and by the end of 2003, Buffett had doubled his money in 16 months.
On top of that, his bonds had earned $45 million of interest, and he still
held on to 1,644,900 of Level 3’s shares.
Qwest
In the summer of 2002, Berkshire purchased hundreds of millions of dol-
lars of bonds issued by Qwest Communications, a struggling telecommu-
nications company based in Denver formerly known as US West, and its
regulatory operating subsidiary, Qwest Corporation. At the time, Qwest
had $26 billion in debt and was in the midst of restating its 1999, 2000,
and 2001 f inancial statements. Bankruptcy rumors were f lying. Qwest
corporate bonds were trading at thirty-f ive to forty cents on the dollar
and the bonds of its operating company at eighty cents to the dollar.
Some of the bonds were yielding 12.5 percent and were backed with spe-
cif ic assets; other, riskier bonds were not. Buffett bought both.
Most analysts at the time said that Qwest’s assets had enough value
for Buffett to more than recover his investment given the current trad-
ing price. And, if it had not been for the interest payments, Qwest