The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [447]
Clayton Homes was the class act of the troubled manufactured-housing industry. Even though it was fundamentally sound, its lenders were behaving, as Buffett said, like Mark Twain’s cat, who, having once sat on a hot stove, wouldn’t sit on a cold one. Buffett felt that Clayton’s problem was mainly that its financing was drying up, and with enough money it could lead the industry to a better business model. Clayton stock had fallen with the rest of the industry to as low as $9. The Claytons, like Salomon during its crisis, were starting to run out of funding sources. They were motivated to sell.
Kevin Clayton: “We might entertain an offer in the twenty-dollar range.”
Buffett: “Well, it’s not likely that we could ever come up with a number that would repay the sweat and time and energy that you and your father have built into this wonderful organization.”
Clayton: “Our financing is getting tight. How about if you just lend to us?”
Buffett: “That doesn’t work well for Berkshire Hathaway. Why don’t you just throw together whatever you have lying around that tells about your company and send it to me someday whenever you have a chance?”
This classic Buffett maneuver, Casting the Line, resulted in the arrival of a massive Federal Express package the next day. The fish had snapped at the bait. The Claytons were like Z. Wayne Griffin, who had been willing to flip a coin over the phone to set a price for Blue Chip Stamps. Buffett knew the Claytons were ready to deal.
Wall Street valued Clayton at more than all of its competitors combined, and its reputation was deserved: Most of the other mobile-home manufacturers were closing retail stores and losing money. Like most cult stocks, it had a founder with a strong, charismatic personality. Jim Clayton, the company’s guitar-picking chairman—a sharecropper’s son, who had started the business by refurbishing and selling a single mobile home—thought of his shareholder meetings as “mini-festivals” and had once strolled up the aisle from the rear of the room toward the stage singing “Take Me Home, Country Roads.” He delegated the negotiating to Kevin, who was a businessman like his father but not so much of a showman. Kevin, of course, had never heard of Buffetting.
Buffett: “$12.50 bid.”
Clayton: “You know, Warren, the board might entertain something in the high teens, more like $17 or $18 a share.”
Buffett: “$12.50 bid.”
Kevin Clayton got off the phone and went and talked to the board. Even though the stock had recently traded around nine bucks, it was a hard nut to swallow, that the company was worth only $12.50.
Clayton: “The board would consider $15.”
Buffett: “$12.50 bid.” Although not part of the official record, by this point he had almost certainly applied his other classic maneuver, the Circular Saw, slicing the floor out from under the Claytons by stressing—in a sympathetic way—how weak and vulnerable they were going to be with their funding sources drying up.
The Claytons and their board went through some further processes.
Clayton: “We’d like $13.50.”
Buffett: “$12.50 bid.”
More discussion.
Clayton: “Okay, we’ll take $12.50, on the condition that we get Berkshire stock.”
Buffett: “I’m sorry, that’s not possible. By the way, I don’t participate in auctions. If you want to sell to me, you can’t shop this bid against me to any other buyer. You have to sign an exclusive that you won’t entertain any other offers.”
The Claytons, who perhaps understood the direction that their industry was headed better than most experts did at the time, capitulated.16
After Buffetting