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68. Paul Keers, “The Last Waltz” Carol Vogel, “Susan Gutfreund: High Finances, High Living,” New York Times, January 10, 1988; David Michaels, “The Nutcracker Suit,” Manhattan, Inc., December 1984; John Taylor, “Hard to Be Rich: The Rise and Wobble of the Gutfreunds,” New York, January 11, 1988.

69. As Mrs. Bavardage.

70. Paul Keers, “The Last Waltz” Cathy Horyn, “The Rise and Fall of John Gutfreund; For the Salomon Bros. Ex-Head, a High Profile at Work & Play,” Washington Post, August 19, 1991.

71. Robert Sobel, Salomon Brothers 1910–1985, Advancing to Leadership.

72. The combative, powerful banker Bruce Wasserstein, a merger specialist, was supposedly going to run the firm. Gutfreund and his key lieutenants knew they would be instantly replaced by Wasserstein. And Perelman as the largest shareholder might scare clients away.

73. Salomon bought the Minorco block itself at $38, a 19% premium to the stock’s $32 market price. It then offered Buffett the stock at the same price. The premium was typical for similar deals at the time (which were also criticized). The stock conveyed 12% voting power in the firm. Perelman offered $42 and said he might raise his stake to 25%.

74. Salomon made a number of missteps. It took on a buyout of TVX Broadcast Group that ultimately failed, muffed a leveraged buyout of Southland Corporation, and wound up holding the bag on a problematic Grand Union buyout. After five unsuccessful years, Salomon exited the merchant-banking business in 1992.

75. Sarah Bartlett, “Salomon’s Risky New Frontier,” New York Times, March 7, 1989.

76. Buffett viewed his investment in Salomon as being like a bond. If he had wonderful stock ideas like GEICO or American Express, he would not be looking at bond equivalents and would not have done this deal.

77. Interview with John Gutfreund.

78. Interviews with John Gutfreund, Donald Feuerstein. Feuerstein’s son went to school with one of Perelman’s children. He knew Perelman was observant and parlayed for a critical delay past the holiday.

79. According to Graham and Dodd, preferred stocks marry the least attractive features of equity and debt. “As a class,” they wrote, “preferred shares are distinctly more vulnerable to adverse developments than are bonds.” Benjamin Graham and David L. Dodd, Security Analysis, Principles and Teaching. New York: McGraw-Hill, 1934, Chapter 26. Preferreds are often described as “bonds with a kicker,” combining the safety of a bond with the upside of a stock. However, as Graham and Dodd note, this is not really correct. If a company gets in trouble, preferreds lack an enforceable claim to the interest and principal. When things go well, unlike a common stock, the investor has no right to the company’s profits. Speaking at the University of Florida in 1998, Buffett said, “The test of a senior security is whether you are getting an above-average return, after tax, and feel certain of getting your principal back.” Here, the preference to the common was meaningless.

80. Beginning October 31, 1995, in five installments over four years, it was mandatory to either convert into Salomon stock or “put” it back to the company for cash. Perelman offered to beat Buffett’s deal—and Gutfreund and several other managers told the board they would quit. He offered a conversion price of $42, much more attractive from Salomon’s point of view. He would have owned only 10.9% of Salomon, compared to Buffett’s 12%.

81. If a potential buyer for his block of convertible preferred appeared, Buffett was obliged to offer Salomon first refusal. Even if it did not buy back the shares, he was prohibited from selling his entire block to any one purchaser. Berkshire also agreed to limit its investment in Salomon to no more than 20% for seven years.

82. Michael Lewis, Liar’s Poker: Rising Through the Wreckage on Wall Street. New York: W. W. Norton, 1989.

83. Interview with Paula Orlowski Blair.

Chapter 47

1. Berkshire Hathaway letter to shareholders, 1990; Michael Lewis, “The Temptation of St. Warren,” New Republic, February 17, 1992.

2. At the University