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By Root 3525 0

Their targets lunged toward any buyer who might conceivably be more friendly; in the end the target company was usually sold to someone or another and financially gutted. The bankers’ fees became so staggering that, instead of waiting for deals to present themselves, the bankers went a-huntin’ on their own, flipping through the ranks of the S&P 1000 the way Buffett had once used his Moody’s Manuals to find cigar-butt stocks. This orgy of mergers that often took place with the consent of only one party riveted the public; the clashes of titanic egos filled the daily papers. Michael Milken’s annual junk-bond conference, the Predators’ Ball,6 lent its name to the entire era.

Buffett scorned the way these deals transferred riches from shareholders to managers and corporate raiders, helped by a long, long line of toll-taking bankers, brokers, and lawyers.7 “We don’t do hostile takeovers,” he said. The deals of the 1980s repelled him above all because they were loaded with debt. To those reared during the Depression, debt was something to be used only with a careful eye for the worst-case scenario. In the 1980s, however, debt became mere “leverage,” a way of boosting profits using borrowed money. “Leverage” arrived at the same time that the U.S. government began running large deficits courtesy of “Reaganomics”—the “supply-side” idea that cutting taxes would ultimately increase tax revenues by stoking the economy. Fierce debates raged among economists over whether tax cuts could actually pay for themselves and, if so, by how much. The economy was heating up at the time from consumer spending, also fueled by debt; John and Jane Q. Public had gradually been accustoming themselves to buying everything with credit cards, building up a balance that they would never pay off until from their plastic death did them part. The Depression-era culture of hoarding and saving had turned turtle, into a culture of buy now, pay later.

Buffett still paid cash and chose the role of the white knight in takeovers. Early one morning in February 1985, while he was in Washington, Tom Murphy called and woke him to say he had just bought the ABC television network.

“You’ve got to come and tell me how I’m going to pay for it,” Murphy said.8 ABC was caught in the crosshairs of the corporate raiders. The company had hung a lure out to see whether Murphy would save it by doing a friendly deal—and Murphy bit.9

“Think about how it will change your life,” Buffett said. Murphy was a devout Catholic who never wasted money on anything—and this was Hollywood. Buffett may well have been thinking about the incongruity between the modest, retiring Murphy and the glamorous world of television, as Murphy believed10—but Buffett’s next move signaled that he wouldn’t mind such a change himself. Or so it seemed, since he recommended to Murphy that Cap Cities/ABC recruit a “gorilla” investor who could protect it if its turn came to be gobbled up by the corporate raiders. To no one’s surprise, Murphy suggested that this investor should be Buffett himself. Likewise, Buffett had no trouble quickly agreeing to spend $517 million of Berkshire’s money for fifteen percent of Cap Cities.11

By saving Cap Cities from prospective raiders, Buffett had now become a player in the biggest media deal in history; Berkshire’s share alone was six times the size of the Nebraska Furniture Mart. At a total of $3.5 billion, he and Murphy had also paid a fancy price for ABC,12 which was struggling and had slipped to third place in the ratings. “The network business is no lollapalooza,” Buffett would later say.13 Yet he had watched the awesome ascendance of television from its infancy and knew well both its power to shape public opinion and its business potential. The combined assets were formidable: Together ABC and Cap Cities would own nearly a hundred publications, twenty-four radio stations, twelve major TV stations, and more than fifty cable systems.14 Buffett wanted Cap Cities/ABC so much that he was willing to leave the board of the Washington Post, as was required by FCC regulations because