The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [552]
6. “If I have seen further it is by standing on ye shoulders of giants.” Letter from Isaac Newton to Robert Hooke, February 5, 1676.
7. “Fighting the Tape,” Forbes, April 1, 1973. “I trust this man [Wattles] to do intelligent things,” Ruane said. Shareholders had sued over the values in the merger, however, illustrating the conflicts created by the Wattles model.
8. Interview with Charlie Munger.
9. Blue Chip made two purchases totaling 137,700 shares, or 6%, of Wesco on July 11 and July 14, 1972. Between July 1972 and January 1973, Blue Chip bought another 51,300 shares, or 2% of the stock, through open market purchases on twenty different days.
10. “Not Disappointed, Says Analyst As Wesco, FSB Call Off Merger,” California Business, March 15, 1973.
11. Wesco’s equivalent book value per share at the exchange ratio offered was $23, compared to Santa Barbara’s $8. Santa Barbara had zero unrestricted capital, whereas Wesco had $7 per equivalent share free net worth. Santa Barbara’s earnings per equivalent share after bad debt accruals and deferred taxes were 28.7% lower than Wesco’s.
12. This is Betty Casper Peters’s recollection of how Buffett related the story to her.
13. A letter from Charlie Munger to Louis Vincenti, February 8, 1973, makes the case that Home Savings’ (a California banking giant) cost structure was so low “because it is run like Wesco.”
14. Interview with Betty Casper Peters.
15. Charles T. Munger testimony, In the Matter of Blue Chip Stamps, Berkshire Hathaway Incorporated, HO-784, Wednesday, March 19, 1975, p. 53. Warren E. Buffett testimony, March 21, 1975, pp. 61–63.
16. Interview with Charlie Munger.
17. “It is awkward,” he wrote, “when we want to talk to you about alternatives to be provided by us for Wesco shareholders, to have you sort of prevented from considering anything unless and until released by FSB [Santa Barbara] or actions of ours…. I guess all we can do is have everyone act as best he can as the matter unfolds to an outcome now not entirely clear to us.” Charles T. Munger letter to Louis R. Vincenti, February 8, 1973.
18. Charles T. Munger testimony, In the Matter of Blue Chip Stamps, Berkshire Hathaway Incorporated, HO-784, Wednesday, March 19, 1975, page 84.
19. Interview with Betty Casper Peters.
20. Minutes of the Special Meeting of Board of Directors of Wesco Financial Corporation, February 13, 1973.
21. Interview with Betty Casper Peters.
22. All analyst commentary from “Not Disappointed, Says Analyst As Wesco, FSB Call Off Merger,” California Business.
23. Peters was grateful to them, writing to Don Koeppel two months later that the decision to kill the deal looked “heroic” because Santa Barbara’s stock price had fallen from over $33 to $15.50.
24. Interview with Charlie Munger.
25. Blue Chip applied to the Federal Savings and Loan Insurance Corporation to buy 50% of Wesco, thereby turning Blue Chip, and potentially its affiliates Berkshire, Diversified, and others, into a savings-and-loan holding company. In the application, the companies said that Diversified had never considered Blue Chip a subsidiary but Diversified and its affiliates might be deemed to control Blue Chip by view of Buffett’s ownership of the stocks of both as well as of Berkshire, which owned 17.1% of Blue Chip at the time.
26. Munger started looking at other California bank stocks and suggested that Wesco might buy a large block of Crocker National Bank.
27. “I have a personal, pronounced prejudice in favor of buying at a material discount from book value stock in extremely entrenched institutions which have earned between 11% and 13% on book value for a decade or more with a history of substantial and ever-increasing dividends. Moreover, I like the idea of diversifying the economic base