Monday, October 7, 2013

Warren Buffett Follows Up With Michael Dell

Dear Michael,
I wanted to follow up on my last letter about your cramming down the SilverDell deal on your shareholders.
Listen, I know that you're very busy, and now that you're in bed with the private equity types you will truly see what "hell on earth" really means.  You'll long for the days with your fawning analysts and compliant public shareholders. Good luck with that project.

I wanted to follow up on the Goldman deal that I made, as I'm sure that you don't keep up with our picayune business.  To reiterate, I threw Goldman an expensive life line during the crisis, and this was to people who really understand what "expensive" means.  If I've learned one thing, it's that markets retrace from overshooting both ways.  You just have to be there with dry powder, make your deal and be patient.

Anyway, not to lecture.  Berkshire invested its $5 billion into the preferred shares and picked up $1.5 billion in dividends before Goldman redeemed the paper, paying us an additional $500 million.  Since the stock was about $160, well above the warrant strike price of $115, they came to Berkshire to offer us a deal for fewer shares without splashing out the cash.  The accounting treatment will be sweet, and the tax treatment even better, not to mention all the cash that's already rolled in.

Berkshire now owns 3% of the premier global investment bank, and I know that if they ever get their shorts in a knot again, the Feds will bail us all out again.  For all my railing about executive pay and CEOs paying more taxes, Lloyd Blankfein ,who like you knows how to pay himself well, works for me!  How sweet this capitalism is.  My shareholders love Charlie and I, while Llloyd's love him, and it's a love fest with Wall Street.

Which gets me back to Dell. Are your assets, namely your people, walking out the door as all the bureaucratic machines grind through getting your deal approved?  Was this mess really the best thing for your company? If you ever come back to the market to sell a public deal, wait three to five years so they won't remember who you are.  Wall Street is fickle and forgetful.

Unfortunately, I don't see Berkshire being interested in anything you're doing.  It's a pity.  But, you see I a make 8,000 meter mountains of money investing in things like banks, railroads, insurance, machine tool makers, candy and ketchup makers.  It's not as highfalutin as your tech world, but more profitable and more fun!

I'll look for you in the pages of Barron's, Michael.

My best,

Warren Buffett

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