The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [455]
The $9 a share, however, would actually be paid by Clayton itself. Cerberus wasn’t going to invest any money. Clayton would have to borrow $500 million and sell off $650 million of assets.40
This was a typical leveraged-buyout proposal, in which a company’s assets are sold and it takes on debt in order to finance its own sale. The recapitalized stock, nominally worth $5, would consist of a piece of a financial company that had piled additional debt on top of a shrunken capital base. Debt was the blood coursing through the veins of mobile-home makers; without it they were dead. And lenders were already shying away from the business. Why would they lend to a company whose ability to repay them had just been gutted? The Cerberus people obviously knew this; they had delivered a proposal that was the best that financial engineering could do. The Claytons called Cerberus to discuss it and, without any rancor, they agreed to go their separate ways.
But CNBC and the financial press were now portraying Buffett as a ruthless financier who had connived with the Claytons to buy the company cheap. The way that the Clayton deal was playing out in the media, and the manner in which Buffett’s reputation had compounded to the point where it worked against him, represented a dramatic reversal of the image of the wise, grandfatherly man who attracted legions of would-be coattail-riders. The blister had popped; the opposition to the Clayton merger showed that large investors were no longer coattail-riding, waiting for his reputation to take prices higher; they wanted to use his reputation against him, to block him.
Buffett, however, had never really specialized in buying things that other people wanted at a price that was too cheap. Instead, he bought things that other people didn’t want and thought that they were better off without. True, they had often been mistaken about that. Increasingly, since the Buffalo Evening News, however, Berkshire had bought properties that most people really were better off without. There weren’t many companies that had the balance sheet to look a union in the eye and stare them down, that had the financial wherewithal to finance Clayton’s debt, that could make decisions on deals like Long-Term Capital in an hour rather than a week. Berkshire could do all those things, and more. Many of the companies Berkshire was now buying were businesses like NetJets, built by entrepreneurs who wanted to sell to a buyer who would treat their babies well, and who trusted Berkshire to behave honestly.41 Buffett’s real brilliance was not just to spot bargains (though he certainly had done plenty of that) but in having created, over many years, a company that made bargains out of fairly priced businesses.
On what turned out to be Susie Jr.’s fiftieth birthday, the adjourned Clayton shareholder meeting finally reconvened. After four months, no other bidder had come forward, and Cerberus had declined to make a deal. In the end, 52.3 percent of the shareholders voted for the Berkshire deal, barely enough. Excluding the Claytons, the other shareholders had voted no by a margin of two to one. Buffett sat by the phone until he got the news. Then he took his daughter out and gave her the gift he had selected for her with the help of Susan Jacques at Borsheim’s—an eternity ring crowned with a large pink heart-shaped diamond—and her latest million-dollar birthday gift. The supposedly cold-blooded financier was a soft-hearted sentimentalist when it came to his daughter, with whom he had an increasingly close and even