Berkshire Special: Buffett Lunch for $650,000

Last year’s charity lunch with Warren Buffett, the CEO of Berkshire Hathaway and arguably one of the world’s best-known and most knowledgeable stock investors, cost a California-based investor $650,000.  For that sum, the Californian and seven of his closest friends had lunch with Mr. Buffett at Smith & Wollensky, a storied New York City steakhouse.
 
The bidding on eBay for this year’s charity lunch, also to be held at Smith & Wollensky, began yesterday and ends on June 27.  At present the lunch is being valued at $41,100 (the highest of five current bids).
 
All proceeds raised from the auction will go to the Glide Foundation, an organization that is working to alleviate human suffering and poverty in the San Francisco Bay Area.  Mr. Buffett’s charity lunches have raised more than $2.0 million for the organization since going online in 2003.
 
Personally, I think this would be the opportunity of a lifetime, but few of us have enough disposable income for a $650,000 steak (and maybe a glass of wine and a side dish of potatoes au gratin).  Even split eight ways, that’s a hefty $81,250 per person.  I guess I’ll just have to log on the Internet for free after the event to see how it went and whether Mr. Buffett provided any sage investing advice for today’s climate.
 
Given the extreme turmoil in the financial markets of late, how much would you pay for the ability to hear what Mr. Buffett has to say?  Tune back in after June 27 to see the winning bid.

 

Laurie Berman, Senior Vice President, lberman@pondel.com
 
 

Russell’s Annual Index Reconstitution

On June 27, after the market close, Russell Investments will rebalance its entire family of indexes, including its 25 U.S. indexes.
 
Russell undertakes this Herculean task every year to “maintain true representation of global equity markets and avoid capitalization and style slippage.”
 
There are a few important dates to watch for:
 

  • Friday, June 13 – Announcement of preliminary additions and deletions to the Russell Global Index and the Russell 3000®.
  • Friday, June 20 and Friday, June 27 – Updates made to the list of preliminary additions and deletions.
  • Friday, June 27 after market close – Indexes are reconstituted.
  • Monday, June 30 – Final index membership lists posted.

 
Index memberships and rankings are determined using a company’s total market capitalization.  Although we won’t know the size of the largest and smallest companies in each newly reconstituted Russell index until June 30, here’s a look at some statistics for the current indexes
 

  • Largest company in the Russell 3000® Index: $468.5 billion market cap.
  • Smallest company in the Russell 3000® Index: $261.8 million market cap.
  • Largest company in the Russell 2000 Index: $2.5 billion market cap.
  • Smallest company in the Russell 2000 Index: $261.8 million market cap.

 
What does this reconstitution mean for public companies?  According to Nasdaq, the day Russell’s indexes are reconstituted is generally one of the heaviest trading days in the U.S. equity markets, as index and other asset managers reconfigure their portfolios to reflect the new composition of Russell’s indexes.  If your company is included in any of Russell’s indexes, be prepared for heavier than usual volumes at the end of this month.

 

Laurie Berman, Senior Vice President, lberman@pondel.com
 
 

M&A Advice You Rarely Read About

The New Yorker—my all-time favorite magazine and the one I read to steal myself away from business news—had an insightful piece about mergers and acquisitions.
 
Tucked inside the Financial Page column (June 9 & 16, 2008 issue), which focused on CBS’s recently announced acquisition of CNET Networks, were some hidden gems of advice for acquirers of companies:
 

  • It is not necessary “to own a company to make money from its properties. Much of what mergers are supposed to accomplish can be achieved through partnerships and alliances.”
  • Mergers “that rely more on cost cutting from such actions as combining back-office operations and eliminating redundancies than on promises of vast growth are more likely to be successful.”
  • “Acquisitions of smaller, younger private companies are usually wiser than acquisitions of publicly traded firms,” where the acquirer must typically pay a steep premium to an already known public valuation.
  • While acquisitions may “boost a company’s growth rate, they too often make it bigger without making it better.”

 
The article’s author, James Surowiecki, aptly quoted Warren Buffett: “Executives see the companies they acquire as handsome princes imprisoned in toads’ bodies, awaiting only the ‘managerial kiss’ to set them free. Unfortunately, most toads turn out to be as warty as they look, and magic kisses are harder to bestow than executives think.”
 
Surowiecki has written a well-received book, The Wisdom of Crowds—Why The Many Are Smarter Than The Few And How Collective Wisdom Shapes Business, Economies, Societies And Nations, which describes systematic ways to organize and aggregate the intelligence available in organizations in order to arrive at superior decisions—often better than those that individuals would make, even if they are ‘experts.’

 

Roger Pondel, President, rpondel@pondel.com