Gustavo Ballvé on March 22nd, 2011
Capital goods, Corporate Governance, Corporate Strategy, Food for thought, Home, Industries, Insurance, Investment Themes, Portfolio Management, Risk management

The WSJ published a story about the possible tactics that Buffett used in the Lubrizol acquisition. We posted about the deal recently. This part sounded like music to our ears:

“(…) Buffett undoubtedly told Lubrizol that he would refuse to participate in an auction. And here is where you see Buffett’s cleverness at work. He puts his targets in a dilemma that really only has one answer:  take the price that looks very good or let Buffett walk away. Buffett’s real genius is a mix of these tactics and his ability to identify undervalued companies combined with the courage to act quickly on his analysis. That mix has been a recipe for big profits for Berkshire.”

The last paragraph, albeit unfair and simplistic, quite honestly still sounded like music to our ears.

“So this is how the Oracle works. He pays a fair price. He refuses to permit his bid to be shopped. He makes his bid very attractive to management, which discourages them from suggesting alternative transactions. He allows a reasonably fair post-signing opportunity for a topping bid—keeping a leg up against other bidders and, in this case, a fat $200 million breakup fee if he gets topped. And, if he is true to form, he gets a bargain.”

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