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What business would you buy to become the next Berkshire Hathaway?


FCharlie
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I thought the topic "What business would you buy if price didn't matter" was a great idea. I have an idea along the same lines.

 

What business would you buy, (Price does matter here) if you were looking for a starting point for a Berkshire Hathaway, Leucadia, Loews, Sears Holdings style company? You will be the controlling shareholder. You control capital allocation. You can buy anything you want with the excess capital or free cash flow that your business produces.

 

Everyone loves what Warren Buffett has done with his textile mills, what the Tisch brothers did with movie theaters, and perhaps while people may not love what Eddie Lampert has done with Kmart, most do respect how he came to control the 4th largest retailer with only $700 million of bonds of then bankrupt Kmart....

 

So what do you think? If you were to take a large equity position in a public company and use it as a platform to make external investments.... What would you buy?

 

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I would buy some battered media firms like SALM, TVL or maybe some newspapers in addition to an insurance core.  Look for cyclically depressed businesses that aren't capital intensive.  Also some leasing types of businesses like pipelines, SSW or AIQ that you can invest capital and get an adaquate yield as alternative to bonds. 

 

Packer 

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I'd love to take Yahoo! (or something like it - low capital intensity and zero debt) and put it into run-off. You could sell the Asian assets and re-deploy into other businesses, public or private (perhaps start amalgamating some insurance companies), then just milk the core business for as long as possible, re-deploying all available free cash flow back into public or private businesses. My guess is that you could increase current EBITDA by nearly 50% just by cutting away excess fat (I've seen Eric Jackson write about how bloated the staff is), then just manage the decline as best as possible. The only way this works is because Yahoo! has no debt - with debt, then the FCF must go toward paying that off if it's in run-off mode.

 

Think about what Yahoo!'s market cap would look like in say five years if it deployed the proceeds from its Asian assets, excess cash on hand and future free cash flow into and equally-weighted basket of Bank of America, AIG, BP and MCD. Better yet, buy a group of insurance companies then deploy the float into these names.

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I'd love to take Yahoo! (or something like it - low capital intensity and zero debt) and put it into run-off.  ...

High-tech would seem harder to "put into run-off" than other sectors - aside from the usual issue of high-tech being highly unpredictable (and often, winner takes all), it also requires continual re-investment, not in the capital-intensive form, but in the form of maintaining thought-leadership necessary to even sustain a position near the leading edge.  This comment is independent of Yahoo or any other specific high-tech company.

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At the right price, the Yahoo! situation would work, particularly due to the Asian assets. Put it this way, I'd take Yahoo! at the right price over Berkshire Hathaway at 50% of net working capital when Buffett bought it, ANY day of the week. 

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I think the difficulty depends upon the level of customer lock-in.  I don't like the title of high-tech industries becasue it includes firms that are capital intensive and require large amount of investment (compter hardware) and some that are the opposite (software).  Many private equity firms have run off software firms successfully due to thier lock-in and low re-invesment.

 

Packer

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What business would you buy, (Price does matter here) if you were looking for a starting point for a Berkshire Hathaway, Leucadia, Loews, Sears Holdings style company? You will be the controlling shareholder. You control capital allocation. You can buy anything you want with the excess capital or free cash flow that your business produces.

 

I doubt there are too many on this board, if anyone, that could buy an insurance business and run it profitably, so the best idea is to hire the best insurance executive out there.  There is only one way to be the next Berkshire Hathaway...hire Ajit Jain and start from scratch again!  ;D  Cheers!

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