The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [134]
Frustrated, Warren decided that he would take the company away from Sanborn’s undeserving board on behalf of the other shareholders. They deserved it more. Therefore, Buffett’s group—Fred Stanback, Walter Schloss, Alice Buffett, Dan Cowin, Henry Brandt, Catherine Elberfeld, Anne Gottschaldt, and some of the others—kept buying. Warren also used new money coming into the partnerships. He had Howard put a number of his brokerage clients into Sanborn. Warren was probably doing his father a financial favor, even as he tightened his grip on the company.
Before long, people friendly to Warren, including the famous money manager Phil Carret, who had bought Greif Bros. and Cleveland’s Worst Mill after hearing of these stocks through Warren, had corralled about 24,000 shares. Once they had effective control, Warren decided it was time to act. The stock market was high, and he wanted Sanborn to unload its investments at an opportune time. Booz Allen Hamilton, the company’s strategic consultants, had already submitted a plan to do this,4 but the sticking point was taxes. If Sanborn sold the investments, it would have to pay a tax bill of about $2 million. Warren offered a solution similar to the Rockwood & Co. tax trick of swapping the investments, tax-free, for stock.
Another board meeting took place at which nothing happened except for more of the investors’ money going up in cigar smoke. For a second time Buffett rode back to the airport looking at pictures of his kids to calm himself down. Three days later, he threatened to call a special meeting and take control of the company unless the directors took action by October 31.5 His patience had run out.
Now the board had no choice. It agreed to split the two businesses. Even so, the issue remained of how to deal with the tax. One of the insurance men said, “Let’s just swallow the tax.”
“And I said, ‘Wait a minute. Let’s—“Let’s” is a contraction. It means “let us.” Who is this us? If everyone around the table wants to do it per capita, that’s fine, but if you want to do it in a ratio of shares owned, and you get ten shares’ worth of tax and I get twenty-four thousand shares’ worth, forget it.’ He was talking about swallowing two million dollars’ worth of tax just because he didn’t want to go to the trouble of doing the share buyback.6 I remember the cigars getting passed around. I was paying for thirty percent of every one of those cigars. I was the only guy not smoking cigars. They should have paid for a third of my bubble gum.”
In the end, however, the board capitulated. Thus, through force of energy, organization, and will, early in 1960 Warren won the fight. Sanborn made a Rockwood-type offer to shareholders, exchanging a portion of the investment portfolio for stock.7
The Sanborn deal set a new high-water mark: Buffett could use his brains and his partnerships’ money to alter the course of even a stubborn and unwilling company.
During this episode, as Buffett traveled back and forth to New York and worked on the Sanborn project, figuring out where to get the stock he needed for control, how to make the board fall in line, and how not to swallow the tax, all the while looking for other investment ideas, his mind whirled with the thousands of numbers that clicked and spun inside his head. At home, he would disappear upstairs to do his reading and thinking.
Susie understood his work as a sort of holy mission. Still, she tried to get him out of his study and into the family’s world: scheduled outings, vacations, dinners in restaurants. She had a saying: “Anyone can be a father, but you have to be a daddy too.”8 Yet she was talking to someone who’d never had the kind of daddy to which she was referring. “Let’s go to Bronco’s,” she would say, and stuff a gang of neighborhood kids into the car for a burger run. At the table, Warren would laugh when something funny happened and would appear engaged, but he rarely spoke. His mind could have been anywhere.9