Billionaire Warren Buffett, who has avoided investing in technology companies, saying he doesn't understand them, has made a bet on computer services by buying a 5.3% stake in Bell Industries Inc. of El Segundo.
According to a filing with the Securities and Exchange Commission, Buffett reported that he held 506,700 Bell Industries shares as of Dec. 1. His stake in Bell had a market value of almost $3.3 million as of the close of trading Monday, when the stock was at $6.44, up $1.44 or nearly 30%, on news of Buffett's investment. The stock has gained 28% this year.
Bell Industries last year sold its then-largest business, which focused on electronics distribution, to Arrow Electronics Inc., and now specializes in systems integration. That makes it a technology company, an area in which Buffett, who is known for holding stocks for the long term, has hesitated to tread.
"Technology hasn't been the area where he's at least publicly dipped his toe into too much," said Bill Sherman, an executive managing director at Carson Group Inc.
With the Bell Industries stake, Buffett joins investors such as the Baird family of Buffalo, N.Y., and activist shareholder Warren Lichtenstein, who have reported new or increased stakes in Bell Industries in recent months.
They may be attracted to Bell Industries because the company is turning itself around, a company executive said.
"Bell has gone through a bit of restructuring through the last year and a half," Bell Industries Chief Executive Tracy Edwards said. "I think investors are seeing an opportunity."
In the last year, Buffett has reported new stakes in companies that have outlined plans to sell some holdings. In October 1998, he disclosed an investment in MGI Properties Inc., a Boston-based real estate investment trust that was in the process of liquidating. In August, he reported a stake in Baker, Fentress & Co., a closed-end mutual fund that announced plans to sell most of its holdings.
Bell Industries was an acquisition target in October when Lichtenstein and his Steel Partners II offered to buy the company for $5.30 a share, citing disappointment with the company's performance. Bell Industries rejected the offer as "inadequate." Bell says now that it plans to expand its systems integration business but that it doesn't rule out putting some or all of its assets up for sale.
Bell Industries posted revenue of $160 million for the first nine months of 1999. More than two-thirds of that came from systems integration, which involves designing, engineering and laying out computer networks.
Although most of Buffett's investing is done through his Berkshire Hathaway Inc. holding company, the Bell Industries stake, like those of his in Baker, Fentress and MGI, were listed in his own name.
Bell CEO Edwards said the board did not know of Buffett's investment until Monday.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Bell Industries Inc.
* Headquarters: El Segundo
* Chairman: Theodore Williams
* No. of employees: 725
* Description: Since selling its electronics distribution unit, then its largest business, to industry leader Arrow Electronics Inc. last year, Bell has been specializing in computer and other related services, such as contract purchasing and direct programming of chips. The company also distributes after-market parts and accessories to the recreational vehicle market.
* 1998 revenue: $212.5 million
* 1998 earnings: $62.8 million
* Monday's closing share price: $6.44
Source: Hoover's Inc.