Company Town: Disney’s Mega-Merger : The ABCs of a Deal : PROFILE: A BIG WINNER : For ‘Oracle of Omaha’ Buffett, a $2.1-Billion Vision of Profit
Chalk up one of the biggest scores yet for the “Oracle of Omaha.”
Billionaire investor Warren E. Buffett, legendary for his canny stock picking and patient willingness to see those picks flourish, stands to reap a staggering pretax profit of $2.1 billion from Walt Disney Co.’s proposed buyout of Capital Cities/ABC Inc. for $19 billion.
Berkshire Hathaway Inc., an Omaha-based conglomerate controlled by Buffett, owns 20 million, or 13%, of Cap Cities’ common shares outstanding, which it acquired in 1986.
Buffett also is a Cap Cities director, and his assent was a major influence on Cap Cities’ decision to accept Disney’s bid.
“This deal makes more sense than any other deal I have seen except for the Cap Cities and ABC deal” in 1986, Buffett told reporters in New York after Disney and Cap Cities announced their merger.
At the news conference, Buffett, 64, sat on the dais with Disney Chairman Michael Eisner and Cap Cities/ABC Chairman Thomas S. Murphy, and Eisner repeatedly referred to how much Buffett approved of the deal.
“It is a merger of the No. 1 content company [Disney] with the No. 1 distribution company [ABC],” Buffett said.
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Disney’s proposal calls for the Burbank-based entertainment giant to exchange one share of its stock and $65 in cash for each Cap Cities share. Disney’s closing price Monday of $58.625 a share thus gives the deal an indicated value of $123.625 a share and values Berkshire’s stake at $2.47 billion.
Berkshire paid $17.25 a share for its stake in 1986 (adjusted for a 10-for-1 stock split last year), so the Disney buyout would give Berkshire a pretax profit of $106.375 a share, or $2.13 billion.
And that’s not Buffett’s only payoff from Cap Cities. Berkshire Hathaway originally bought 30 million shares of the company, but it sold 10 million of them in 1993 for an after-tax gain of $297 million. Berkshire last year also reaped $2.2 million in dividends on its Cap Cities stake.
Berkshire has bought large stakes in several companies, most of which have paid off handsomely for Buffett, a low-profile but occasionally gregarious man who drinks cherry Cokes and writes frank, plain-spoken homilies in Berkshire’s annual reports.
Buffett last year was ranked by Forbes magazine as the nation’s second-richest individual with a net worth of $9.2 billion, just behind Microsoft Corp. Chairman Bill Gates.
The Disney-Cap Cities deal and Gates’ own good fortune will no doubt keep that ranking close again this year. In addition to Buffett’s huge gain, a rally in Microsoft’s stock this year has further enriched its founder.
Berkshire’s Cap Cities stake also is a classic example of how Buffett chooses to make long-term investments in companies that he believes are well managed: He views Cap Cities’ Murphy as one of the nation’s best executives.
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Buffett hasn’t always guessed right with his investments, however. In March, Berkshire announced a loss of nearly $269 million on a 5 1/2-year stake in the struggling airline company USAir Group Inc.
At the news conference Monday, Buffett told reporters he wasn’t worried about what to do with his Cap Cities windfall.
“We already have a lot of cash, so we are always thinking about what to do with the money,” he said.
David Leibowitz, an analyst at Burnham Securities in New York, said Buffett has indicated it’s becoming difficult to find investments that allow Berkshire to be a passive investor, so the company is looking to make more acquisitions.
“This will further enhance their ability to make a larger takeover,” Leibowitz said.
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Times wire services contributed to this report.
