Buffett, mergers and why they happen

The headline stories in The Wall Street Journal and The New York Times, as well as the important topic of chatter about the stock market on CNBC were all the same story: Warren Buffett and a Brazilian Company, 3G Capital, are taking over H.J. Heinz. As the story goes, Buffett was the money man, while 3G will run the actual operations.

This is not the first big business deal for Brazilian financier Jorge Paulo Lemann. He has also purchased Burger King and, earlier, an investment bank in Rio de Janeiro. According to The Journal, Lemann and Buffett have known each other since their days together at Harvard. Lemann is a few years younger than Buffett, and, although he is a native Brazilian, he moved to Switzerland 10 years ago after a kidnap attempt.

If you’re wondering what Buffett has done with his own money, apparently not borrowing any, here’s the list from The Journal of his acquisitions of the past five years: Burlington Northern, $26.7 billion; General Re (high-risk insurance), $16.2 billion; Heinz, $12.1 billion; IBM (part, I would guess), $10.7 billion; Lubrizol, $9.2 billion; and a string of other, smaller acquisitions coming to about $30 billion.

These are just part of the long list of mergers and takeovers. Others include, in part, Dell Computer, NBC, Virgin Media and US Airways Group. So, why all these mergers recently?

In the old days, one company would buy another because usually the buying company thought it could run the other company better. Now, and this is just a guess, the larger company has reason to believe that the company it’s buying has a lot of cash on hand. What that means is that, as, for example, while Buffett and his friend at 3G are paying $26 billion, they are counting on the likelihood that Heinz has a ton of cash itself.

Now we come to the heart of the matter. If not in every speech, certainly in his campaign appearances, President Barack Obama brings up the notion that we do not have enough fairness in this country. The president’s theme and belief is that the wealthy, mostly nonminorities, of course, have been running the country for 200 years for their own benefit. He was “caught,” so to speak, during the last campaign, when, after a scathing speech about Wall Street investment bankers, he attended a Wall Street fundraiser.

Several of the attendees wondered – out loud – why they should give money to a candidate who besmirches them at every opportunity. He may have gotten the message, but Warren Buffett, and, I believe Bill Gates, are in his circle of friends.

I would wonder the same thing, if I was among them.

Bud Stevenson, a stockbroker, lives in Fairfield. Reach him at Bsteven254@aol.com.