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To stop the directors of Wesco giving away too much of the company to shareholders of Santa Barbara savings and loans Buffett and Munger came up with a two-pronged strategy.
First, Blue Chip needed to increase its voting rights. It bought more shares, paying up to $17, until it had 17% (The regulators prevented an unapproved shareholding of more than 20% in S&L companies).
Second, they needed to persuade members of the board that this merger was not in the best interests of shareholders. Munger asked for a meeting with Wesco’s CEO, Louis Vincenti, but was politely told that the deal will go ahead if shareholders approved following a recommendation from the board.
The rebuffed Munger then looked to Betty Caspers Peters. At first Don Koeppel, President of Blue Chip, spoke to Peters, but he was sent away.
Then Buffett phoned. Fortunately, she had just finished reading about Buffett and his Graham-based philosophy in the book Supermoney (Jerry Goodman, “Adam Smith”, 1972), where he is described as a clear thinker, full of business wisdom. Suitably impressed, she agreed to meet him only 24 hours later.
They met in a lounge at San Francisco airport. While they hit it off straight away, Peters made it plain that she wanted something done at Wesco. Buffett asked if, instead of the merger, he might be allowed to give it a try. He was convinced that he could generate more value for shareholders. And, after all, as Peters read in Supermoney, he had an impressive record in boosting returns in the companies he controlled.
But what if Buffett was incapacitated, or was run over by a bus and killed? Where would her and her brother’s shares be then? Well, Charlie Munger was a fine person to take over. After all, Buffett trusted Munger’s intelligence and integrity to such a degree that he had already arranged for him to manage Berkshire Hathaway and his family shareholdings if he was unable to.
After three hours it was agreed that Peters would lobby the board for a cessation of merger plans.
Following a second meeting, this time with Munger as well as Buffett, Peters was willing to press the board to arrange a meeting with the two of them. When she attempted this she found a determination to go ahead with the merger rather than discuss it further. Annoyed, she got her family to vote against it.
What happened next?
The merger plan was defeated by a shareholder………To read the rest of this article, and more like it, subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
