Buying a Business 43good management in place. He is interested in companies in the $5 bil-
lion to $20 billion range, the larger the better. He is not interested in
turnarounds, hostile takeovers, or tentative situations where no asking
price has been determined. He promises complete conf identiality and a
quick response.
In Berkshire Hathaway’s annual reports and in remarks to share-
holders, he has often described his acquisition strategy this way: “It’s
very scientif ic. Charlie and I just sit around and wait for the phone to
ring. Sometimes it’s a wrong number.”^1
The strategy works. Through this public announcement, and also
through referrals from managers of current Berkshire companies, Buf-
fett has acquired an amazing string of successful businesses. Some of
them have been Berkshire companies for decades, and their stories have
become part of the Buffett lore.
See’s Candy Shops, for example, has been a Berkshire subsidiary
since 1972. It is noteworthy because it represents the f irst time Buffett
moved away from Ben Graham’s dictum to buy only undervalued com-
panies. The net purchase price—$30 million—was three times book
value. Without doubt, it was a good decision. In 2003 alone, See’s pre-
tax earnings were $59 million—almost exactly twice the original pur-
chase price.
At Berkshire’s annual meeting in 1997, 25 years after the See’s pur-
chase, Charlie Munger recalled, “It was the f irst time we paid for qual-
ity.” To which Buffett added, “If we hadn’t bought See’s, we wouldn’t
have bought Coke.”^3 Later on in this chapter, the full signif icance of that
comment becomes apparent.
Another company well known to Berkshire followers is Nebraska
Furniture Mart. This enormous retail operation began in Omaha,
Buffett ’s hometown, in 1937 when a Russian immigrant named Rose
Blumkin, who had been selling furniture from her basement, put up
$500 to open a small store. In 1983, Buffett paid Mrs. B, as she was
universally known, $55 million for 80 percent of her store.
Today the Nebraska Furniture Mart, which comprises three retail
units totaling 1.2 million square feet on one large piece of real estate,
sells more home furnishings than any other store in the country. Run-
ning a close second is the second Mart, opened in 2002 in Kansas City. In
his 2003 letter to shareholders, Buffett linked the success of this 450,000-
square-foot operation to the legendary Mrs. B., who was still at work