2018: Will the returns on Berkshires special deals be lower when Buffett isn't negotiating them?
GREGG WARREN: Good morning, Warren. I have a little bit of a follow-up on Becky’s question.
At the 2014 annual meeting, as well as this morning, you noted that the power of Berkshire brand and its reputation, as well as the strength of Berkshire’s balance sheet, would allow the company’s next managers to replicate many of the advantages that have come with your being the face of the organization, one of which has been an ability to extract high rents from firms in exchange for a capital infusion and the Buffett seal of approval during times of financial distress.
I buy the argument about the strength of the balance sheet and believe that deals will continue to be done with sellers still lining up to become part of the Berkshire family, especially if the company’s next managers are allowed to keep a ton of cash on hand.
But I’m not entirely convinced that they’ll be able to garner the same 8, 9, 10 percent coupons, as well as other add-ons, that you’ve been able to extract from firms like Goldman Sachs and Bank of America in times of distress.
I’d expect those rents to be at least a few percentage points lower once you’re no longer running the show. That is, until those managers build up a reputation to warrant higher returns. Am I right to think about it that way?
WARREN BUFFETT: I’m not sure. The — when we, in two — you mentioned Goldman Sachs, and we also did with General Electric, in September or early October of 2008. We probably could actually have extracted better terms.
You know, I think it might have been counterproductive in the end, but I was — we would have done better, incidentally, financially, if we’d really waited until the panic developed further — because I didn’t know how far it would develop — but we could have made a lot better purchases three or four or five months later than we did at that time.
And we also did not want to do something that looked to be so high as to in — make the transaction disadvantageous to Goldman or to GE.
They were going to take the terms we offered, but we actually didn’t push it to the limit, because there really wasn’t anybody else around.
I think — and we’re working on something right now that probably won’t happen. It’s not huge.
But actually, in this case, both Todd [Combs] and Ted [Weschler] have brought deals to me. One of them brought something to me, and, you know, he was thinking in the same terms that I got — was thinking about — and he’s the one that returned the call that he had received about a transaction.
And I do not think the party on the other side is going to care about the fact that they had him on the phone rather than me on the phone. I —
You know, there may — there could be just a little bit at certain times in history. But, you know, we will continue to have our standards of what we think money is worth at any given time. And Ted and Todd think just as well about that as I do.
And there will be times, very occasionally, when our phone will ring a lot. And I don’t think they’ll hang up because I don’t answer it, if they need the money.
CHARLIE MUNGER: Well. The times he’s referring to, a lot of them, were like the worst in 50 years. So that’s a really rare kind of an occurrence. And we didn’t make all that many deals. So I think he’s right that it’ll be harder for us to make similar deals in the future.
WARREN BUFFETT: Yeah, the problem is the sums involved now, more than the problem of deciding what the proper terms should be. And sometimes we can get what we think is appropriate and sometimes we — most of the time, today, we can’t.
But you may see a transaction or two that — not in terms of buying business but in terms of securities — that strike you as perfectly decent ways to invest Berkshire’s money.
And they may well have come through Todd or Ted instead of directly to me.
I like to think I’ll be missed a little bit, but I — you won’t notice it. (Laughter)