Buffett Beyond Value by Prem C. Jain

Author:Prem C. Jain [Jain, Prem C.]
Language: eng
Format: epub
ISBN: 9780470608951
Publisher: Wiley
Published: 2017-04-18T00:00:00+00:00

Shaw Industries, Marmon, and McLane

Several other Berkshire subsidiaries are also from honest-to-goodness traditional industries. We get like insights from the way Buffett manages these subsidiaries. In Table 13.2, I present the profitability numbers of one subsidiary because it is a relatively recent acquisition, and its major numbers are available from various Berkshire annual reports. Shaw Industries is a leading manufacturer and distributor of carpets and rugs for residential and commercial use. Berkshire acquired 87.3 percent of the company in 2001 and the remaining 12.7 percent in 2002. In total, Berkshire paid $2.4 billion.2

Shaw’s revenues and earnings climbed steadily from 2001 to 2006 but declined in 2007 and 2008 as the housing market collapsed. (Dividend numbers are not available.) Identifiable assets also increased as the demand for Shaw’s products rose during the booming housing market. In terms of return on Berkshire’s investment of $2.4 billion, the average level of annual return from 2002 to 2008 is about 15 percent after accounting for taxes. This is certainly a very healthy return because the investment in Shaw should be considered relatively safe from a long-term perspective. It is difficult to imagine that the market for carpets will go away and that a well-managed, dominant company will not remain profitable for a long time.

In the cases of both Scott Fetzer and Shaw, the CEOs in charge at the time of the acquisitions were not replaced. Ralph Schey at Scott Fetzer continued as the CEO for 14 more years, and Robert E. Shaw continued as the CEO for six more years. Neither of them left the companies they managed for another position, but retired.

Table 13.2 Shaw Industries: Profitability and Growth after Berkshire’s Acquisition of Shaw

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