Buffett: I Was Wrong on Anheuser-Busch

Buffett was on CNBC Friday morning.  Here's a transcript/video.  I noted the following exchange regarding Anheuser-Busch:

QUICK: OK. Let's talk about your most recent disclosures for some of your holdings. When we saw the last numbers, your shares in Anheuser-Busch, a lot of people were surprised to see that you had gotten out of those shares before a deal went through with InBev.

BUFFETT: That's right. I sold about 60 percent of them in the second quarter.

QUICK: Why?

BUFFETT: Well, I wasn't--it was an evaluation of whether I thought the deal would go through and the desire to sell at least some of the shares. I mean, Anheuser-Busch did not want the deal to go through and they hired investment bankers, very expensive. They spent $72 million with two investment banking firms. And believe me, most of that was spent with the idea of trying to keep InBev away. So who knew how it was going to come out? And InBev persevered, they raised their price and on the remaining shares we'll do somewhat better; although there's still a time factor and we've used the money for other things. But in retrospect, I was wrong to decide to partially sell the holdings.

I was a little surprised by this.  Leaving aside the timing of the deal and Berkshire's alternative uses of capital, I thought it was highly likely InBev would succeed in winning BUD, given the former's deal skills and the latter's relative lack of defenses.  I wonder why Buffett thought differently.

Comments

[Alex Garcia:]

It proves that even the best make mistakes.

2008 Aug 24 12:47 PM

[Todd Kneeland:]

I thought Warren Buffett's justification was very weak in facts and indeed
with the tiny holdings ( less than 4%) the Bush family held and their weak defenses to a robust emerging firm Bud had no chance to holdout.
Sclerotic management and a very ordinary product mix comes to mind for A. Bush et als.
Buffett blew it again, but don't we all? Todd

2008 Aug 24 01:43 PM

[WEBISKING:]

This is a subjected where my prediction of this Im Bev doing this was documented last November.However like WEB sold off at 63 because as logical and benefiicial as this was Bud's management coud not be "trusted" to do the right thing.Not to mention that i the deal didnt go through you coud have a "Yahoo like effect" where the stock drps 30%. This is acoming from me ,someone who has documented evidence they predicted the merger.Bud 's management under IV is inept. Big moat though

2008 Aug 24 02:59 PM

[granger:]

I think this shows Buffett's brilliance. He is human. In the face of uncertainty, he acted in the best interest of his shareholders. He put himself in a win/win position. Sell some at the known price and keep a little in case the price goes higher.

If the deal had fell apart, how would he look. I think he did exactly as he should have.

2008 Aug 24 06:38 PM

[secmaven:]

Amen to granger. Pigs get slaughtered. Buffet made a tidy profit on the shares that were sold.

2008 Aug 25 10:38 AM

[bacaboots:]

I also agree w/granger & secmaven. Buffet done the right thing. I too done this (of course with a lot less stock) and I'm satisfied. My only regret was not buying 5 years ago.

2008 Aug 25 05:37 PM

[kurt walter:]

News Flash: Saint Warren screwed up.

2008 Aug 25 07:52 PM

[Mayitoval:]

It's called HEDGING

2008 Aug 26 08:59 AM

[WEBISKING:]

Buffett was right given Yang's behavior at yahoo.Busch IV has proven to be an inept CEO who by the way was granted options for the last year and promptly sold them in the mid 40s. If he really wanted this merger he would have held them. Buffett took his cue from Busch IV

2008 Aug 26 09:09 AM

[Owen:]

Buffett doesn't believe in hostile takeovers. Capable, cooperative existing management is worth a large premium, as far as he is concerned. When faced with a hostile suitor, otherwise well-run companies often take rash, unexpected actions. We've seen this before. If, in an attempt to thwart InBev, BUD leveraged itself to buy, say, Sapporo Breweries, the result for shareholders could have been disastrous. Ego is a large liability, and when management uses it in lieu of rational business logic, the right place for investors to be is nowhere near.

At $63 a share, Buffett got most of the takeover premium, without taking any of the proxy battle risk. Being humble, he calls it a mistake, but faced with the same situation again, he would do exactly the same, and rightly so.

2008 Aug 26 10:40 AM

[Nadav Manham:]

Thank you Owen, I think you're very likely right. I consider myself a Buffettologist but I'm not an expert in his risk arbitrage moves. As I think back, I remember that he only invests in announced deals, which kept him out of a lot of activity during the 80s. He also made a good living as a "white knight" during that period to managements faced with hostile takeovers. It's a short step from that to realize that he knows a lot about how managements can behave under these circumstances, even those who seem defenseless. Buffett can evaluate a lot, but he probably can't evaluate management irrationality, especially when it's mixed up with patriotic nationalism and King Lear-like family psychodrama.

If anyone's interested, Buffett goes into some detail about one of his arbitrage investments (Arcata) in his 1988 letter to shareholders:

www.berkshirehathaway....

2008 Aug 26 11:25 AM

[dg arc:]

as someone else has mentioned - buffet has very high standards for himself what he calls his mistake is the sort of return most morons that manage funds would call excellent performance

2008 Aug 26 01:06 PM

[huangjin:]

In this case, being close to management was a liability.

2008 Aug 26 04:20 PM

[bearfund:]

granger, Owen, et al hit the nail right on the head. Nobody ever went bankrupt taking profits, and he even kept some skin in the game in case he was wrong. His shareholders made money; when you're in a position in which you win big if you're right and win even bigger if you're wrong, you've done your job very well indeed.

2008 Aug 27 12:11 AM