The Essays of Warren Buffett: Lessons for Corporate America, Third Edition by Lawrence A. Cunningham & Warren E. Buffett

Author:Lawrence A. Cunningham & Warren E. Buffett [Cunningham, Lawrence A.]
Language: eng
Format: azw3
ISBN: 9781611634099
Publisher: Carolina Academic Press
Published: 2013-03-01T04:00:00+00:00

The common stocks of both Gillette and First Empire [into which Berkshire’s preferreds had been converted] have risen substantially, in line with the companies’ excellent performance. At year end, the $600 million we put into Gillette in 1989 had appreciated to $4.8 billion, and the $40 million we committed to First Empire in 1991 had risen to $236 million.

Our two laggards [USAir and Salomon], meanwhile, have come to life in a very major way. In a transaction that finally rewarded its long-suffering shareholders, Salomon recently merged into Travelers Group. All of Berkshire’s shareholders—including me, very personally—owe a huge debt to Deryck Maughan and Bob Denham for, first, playing key roles in saving Salomon from extinction following its 1991 scandal and, second, restoring the vitality of the company to a level that made it an attractive acquisition for Travelers. I have often said that I wish to work with executives that I like, trust and admire. No two fit that description better than Deryck and Bob.

Berkshire’s final results from its Salomon investment won’t be tallied for some time, but it is safe to say that they will be far better than I anticipated two years ago. Looking back, I think of my Salomon experience as having been both fascinating and instructional, though for a time in 1991-92 [when serving as its chairman] I felt like the drama critic who wrote: “I would have enjoyed the play except that I had an unfortunate seat. It faced the stage.”

The resuscitation of US Airways borders on the miraculous. Those who have watched my moves in this investment know that I have compiled a record that is unblemished by success. I was wrong in originally purchasing the stock, and I was wrong later, in repeatedly trying to unload our holdings at 50 cents on the dollar.

Two changes at the company coincided with its remarkable rebound: (1) Charlie and I left the board of directors and (2) Stephen Wolf became CEO. Fortunately for our egos, the second event was the key: Stephen Wolf’s accomplishments at the airline have been phenomenal.

There still is much to do at US Airways, but survival is no longer an issue. Consequently, the company made up the dividend arrearages on our preferred during 1997, adding extra payments to compensate us for the delay we suffered. The company’s common stock, furthermore, has risen from a low of $4 to a recent high of $73.

Our preferred has been called for redemption on March 15. But the rise in the company’s stock has given our conversion rights, which we thought worthless not long ago, great value. It is now almost certain that our US Airways shares will produce a decent profit—that is, if my cost for Maalox is excluded—and the gain could even prove indecent.

Next time I make a big, dumb decision, Berkshire shareholders will know what to do: Phone Mr. Wolf.

* * * * *

In addition to the convertible preferreds, we purchased one other private placement in 1991, $300 million of American Express Percs.

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