The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [142]
Buffett dreaded confrontation. His first instinct was to avoid it, and he ran like a singed cat if anyone threatened to explode at him the way his mother had. But he had also learned to shut down emotionally in the face of a possible eruption. The trick, he felt, was “to create a shell around yourself with respect to that, without creating a shell that extends beyond” the situation, to keep from becoming a hardened person.
Whatever happened when he fired Lee Dimon, Harriett Dimon afterward wrote Warren a letter in which she accused him of being “abrupt and unethical,” and, through his coldness, of destroying her husband’s confidence. Buffett, at almost thirty-two, had not yet learned to fire people with empathy.
Within days he sent his new employee Bill Scott over to Beatrice to help Harry Bottle rummage around the parts department and decide what to toss out and what to reprice.13 They swept through the place like a swarm of boll weevils and slashed inventory, sold off equipment, closed five branches, raised prices for repair parts, and shut down unprofitable product lines. They laid off a hundred people. This extensive shrinkage of the business by its new out-of-town management on the heels of the firing prompted the townspeople of Beatrice to eye Buffett with increasing distrust, suspecting that he was a ruthless liquidator.
By year-end 1962, Bottle had pulled Dempster into the black. In his January 1963 letter to partners, Buffett called Dempster the high point of the year, and named Harry Bottle the man of the year.14 He estimated the value of the company, worth $35 per share a year earlier, at $51 per share. The bank was happy. As the assets were sold and the inventory whittled, Dempster piled up about $2 million in cash, worth $15 per share. Meanwhile, Buffett had borrowed—another $20 against each share to have funds to invest. With that, Dempster’s investment portfolio was as large as the rest of the partnership’s.
Now Buffett was faced with a Sanborn-type problem. Ironically, he had become one of those executives with a cash hoard. The market had rebounded smartly from its lows of June 1962. Trying to use Dempster’s extra money, he sent Bottle and Scott to upstate New York to see a manufacturing plant of the Oval Wood Dish Company, which made Popsicle sticks, wooden spoons, and the like, but didn’t buy it.15 Buffett tried to sell Dempster privately but found no takers at his price, so in August he notified the shareholders that the company was for sale, and ran an ad in the Wall Street Journal:
Profitable Manufacturing Company for Sale
…Company is a leading farm equipment, fertilizer applicating equipment and water systems manufacturer. [Dempster] will be sold as a going concern at a public sale on September 30, 1963, subject to a negotiated sale until Sept. 13, 1963…. Contact, Mr. Harry T. Bottle, President.
He gave buyers a month to get their bids in before the public auction. He had already been talking to most of the obvious candidates.
Beatrice went berserk at the thought of another new owner that might impose layoffs or a plant closing on its biggest and virtually only employer. In the postwar boom, plants opened, they didn’t close. Less than a quarter century after the end of the Great Depression, the prospect of mass unemployment brought back haunting memories of gray-faced men in soup lines, drifters wearing patched coats, a quarter of the nation unemployed, hunger and malnutrition, demeaning government make-work jobs.
The people of Beatrice pulled out the pitchforks.16 Buffett was shocked. He had saved a dying company. Didn’t they understand that? Without him, Dempster would