Warren Watch: Class eager to let him do most of the talking

Some University of Nebraska at Omaha students recently heard an offer from Warren Buffett:

"If I gave you a billion dollars ..."

Of course, Buffett was making a hypothetical statement, illustrating how to know when a business has a "durable competitive advantage" over others in the same industry. If a competitor had a billion dollars, could it steal away your customers?

It was one lesson among many for the 32 students in a class titled "Genius of Warren Buffett," offered for the first time this fall at UNO's College of Business Administration. The final class session was a two-hour lunch and Q&A with Buffett at the Happy Hollow Country Club.

Offered through UNO's executive MBA program, the class covers not just Buffett's investing ideas but also his management methods, communications style, philanthropy, character and other aspects of his life. The instructor is Robert Miles, who has written several books about Buffett and Berkshire Hathaway Inc., the Omaha-based investment company Buffett heads.

The class is under the auspices of finance department Chairman David Volkman, who will grade the students' final papers later this month.

The billion-dollar "offer" came when Claire Kenkel's team outlined a potential acquisition target for Buffett: the Buckle, a Kearney-based casual clothing retail chain.

The company met many of Buffett's criteria for purchase: strong return on capital, a family run company, $135 million in annual revenue and a business plan that's difficult for competitors to copy, said Kenkel, who is international marketing manager for an Omaha health care diagnostics company.

Buffett responded that the team's analysis had hit all the right points, she said. "That was kind of an affirmation that at least we hadn't missed the mark entirely."

The billion-dollar comment also indicated that competitors would have difficulty taking over the Buckle's market, she said.

Buffett also pointed out the price-control advantage that some companies have. If Coca-Cola raises the price of each drink it sells by a penny, that's $17 million a day and more than $6 billion a year.

In all, the UNO students outlined nine companies for Buffett to consider for acquisition. But students kept their comments brief, Kenkel said. "We wanted to maximize the amount of time Warren was speaking. We were there to learn from him."

In return, the Berkshire CEO bought the lunch — burgers, fries and Cokes.

"I think he really enjoyed it, and the students really enjoyed seeing how his mind works," Miles said from his home in Sarasota, Fla.

Of the 32 students, 20 are working on MBAs and 12 are "lifelong learners" not earning college credit. Most were from the Omaha area, but some came from Texas, Missouri, California, Kansas and Illinois.

Buying Canadian?

There's speculation that Berkshire's BNSF Railway is a potential buyer of Canadian Pacific Railway, since shares in the Canadian rail line are being bought up by Pershing Square Capital Management, headed by William Ackman.

Bloomberg News reported that Jefferies & Co. analyst Peter Nesvold raised the Burlington possibility, although others said a Canadian pension fund is a more likely buyer. A combined Canadian Pacific and BNSF would serve the entire western United States and Canada, Nesvold said.

Rail mergers in the United States have involved mostly "end-to-end" rail lines, railroads that don't run parallel tracks through the same territories but rather can combine their geographic markets if they are allowed to merge. Government regulators want to preserve rail competition where possible.

Canadian Pacific's lines connect in several spots with BNSF, which would offer some logic to the possibility of a Berkshire bid.

A push into plastics

Berkshire division Lubrizol Corp. agreed to purchase Merquinsa of Barcelona, Spain, a leader in specialty thermoplastic polyurethanes, a type of plastic that can be melted and reformed into a wide range of products.

The purchase would add strength to Lubrizol's global plastics portfolio, said Rocco Mango, vice president and general manager of Lubrizol's engineered polymers division. Merquinsa is a family-owned business started in 1964, employing about 100 people and headed by President Jose Luis Ayuso.

Terms of the purchase, to be completed this year, were not disclosed.

Industry journal Plastics Today said the purchase would create a "global thermoplastic polyurethane powerhouse," especially in medical tubing.

Congressman angry

Rep. Tim Huelskamp, R-Kan., said in a Washington Times commentary that Buffett is undermining his shareholders by endorsing President Barack Obama's policies.

Earlier, Huelskamp had challenged Buffett to release his income tax return, prompted by Buffett's call for high-income Americans to pay fair income tax rates. Buffett declined but has said he would if some other high-income taxpayers release theirs.

"Shareholders would be outraged if Berkshire Hathaway hired Mr. Obama as its CEO," Huelskamp wrote. "But they should be just as outraged that the current CEO is championing the president's ideas and ideology, both of which threaten and undermine the company's obligation to maximize shareholder value."

An editorial in the Hutchinson (Kan.) News said Huelskamp looks bad going after Buffett: "Huelskamp apparently doesn't know how to recognize when he has been outclassed."

Contact the writer:

402-444-1080, steve.jordon@owh.com