It has been about two days since my favorite investor, Mr. Warren Buffett struck another acquisition super deal. This time he has made about 10% dent into the US$47 billion pile of cash his company Berkshire Hathaway has had on its hands by spending about US$4.5 billion for 60% stake in privately owned conglomerate Marmon Holdings Inc. (web: www.marmon.com)

It has also been reported, that this Buffett’s biggest ever investment outside of the insurance industry provides for Berkshire to acquire the rest of Marmon Holdings Inc. in progressive stages by 2014. So let’s just have a look at it a little closer.

Businesses of Marmon Holdings
Once again this company seems to fall neatly into traditional Buffett’s investing pattern easily complying with his rules for selection such as:

a) long tradition:
Marmon Holdings dates back to 1953 when its current owners, the Pritzker family, purchased an ailing manufacturer Colson Corporation.

b) continuous steady growth:
From its humble beginnings, Marmon evolved to multi billion organization which now operates over 125 independent business units in sectors such as Transportation Equipment Services, Construction & Industrial Components, Electrical Components and Retail Services (ie “boring” business segments just to Warren Buffett’s liking).

In 2006 Marmon Holdings employed in excess of 21,000 people in all parts of the globe and generated revenue in the vicinity of US$7 billion.

c) quality management:
Over the years of continuous business success the company still managed to stay privately owned by its founding Pritzker family. As its often the case in family businesses, they seem to have run pretty “tight ship” never allowing the costs of operation or company debts mushroom to levels which would severely the growth in Marmon’s bottom line.

d) good purchase price:
Valuing a company is always a tricky exercise even more so if the business is in private hands without much of the for public disclosure. As reported on their website, Marmon’s 2006 revenue reached US$ 6.98 billion (23.8% increase on 2005) and before tax income figure for the same year stands at about US$ 1.01 billion (pretty much in line with 2005).

The complete 3 years figures reported by Marmon’s are as follows:

So back of the envelope calculations seem to suggest that if Marmon’s keeps running its course for years to come (and the “boring” businesses seems to be able to do so for decades), Warren Buffett’s initial investment of US$4.5 billion should yield him about 60% of US$1 billion ie. US$600 million before tax.

That figure would suggest initial Return on Investment in the vicinity of 13.3% with a big potential for increase as Marmon’s keeps on growing its revenue and Berkshire keeps on purchasing the remaining portion of the company over the years.

Art of the deal Buffett style
Once again, Mr. Buffett has not disappoint the wide investing public with an ease and quickness he seemingly came up with this investment decision to allocate US$4.5 billion.

As reported, Buffett was first contacted about the potential transaction in the second week of December at a San Francisco election rally, following morning provided with a “phone book” sized document describing the The Marmon Group, read it on the plane back to Omaha and upon landing made the “we have a deal” phone call back to the Marmon’s banker.

And so it seems that Warren Buffett takes for his US$4-something billion purchases similar amount of time the regular folks spend on purchasing a fridge or washing machine.

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I am sure that most of the value focused investors in Australia is familiar with one of the better investing magazines on the topic available, Intelligent Investor. Even though not always fully agreeing with their takes on things, I too count myself amongst their keen followers. Looking at their approach in retrospect I realized that two major issues I have with this media are first their ridiculously high subscription fees and lately somehow more and more of those “we told you so�? type of articles.

The pricing
One thing to clarify right from the start – I am not and have never been paying subscriber of the Intelligent Investor however I have read a large number of their trial editions, free articles etc. Hence may obvious bias as I may be missing on some of the additional perks a paying subscriber could have been receiving.

So looking at their subscription fees on their official subscription site one is presented with following:

• 6 Months (12 issues): online version $345 / postal version $375
• 1 Year (24 issues): $545 / $595
• 2 Years (48 issues): $995 / $1095

Keep in mind however, that, to may best knowledge, Intelligent Investor is still not one of your regular “over the counter�? magazines you could pop up into your local newsagent for. The only way you can become a regular reader is to become a subscriber. Now, say you have all the available cash on hand, decide to go for the most value for your money and pay $995 for 2 years subscription of their online version. Each issue will than cost you more than $20. Try to compare that to few of the similar Australian printed magazines within same category:

• Money Magazine:
  over the counter $6.50 / discounted 24 months subscription (22 issues) $99
• Australian Property Investor:
  over the counter $8.95 / discounted 24 months subscription (24 issues) $139
• Financial Review’s Smart Investor:
  over the counter $7.95 / discounted 24 months subscription (24 issues) $155
• Investor Weekly:
  over the counter $10.30 / discounted 12 months subscription (48 issues) $495

(all the above information sourced from isubscribe.com.au)

So the Intelligent Investor’s least attractive design and quality of print will set you back at least twice as much money any of the others, above mentioned investing magazines would have. Yes sure you may argue that their “news hole�? is the biggest one amongst the listed (ie. not including any adds in the magazine) and that their value focused reporting/tips may bring you, arguably, the highest investing returns. Well, I think that few medium sized adds in order to lower the sales price per issue would not hurt. And as to the value creation to its readership: perhaps the jury is still “out there�?. I know of no reliable comparison tool which measures such value making claim between different media outlets.

The “we told you so�? style reporting
Again fairly subjective and biased judgement of mine is somehow telling me, that in this highly competitive part of the media industry, “blowing one’s own horn�? in order to keep and/or increase the readership numbers may be necessary. To me, this factor became even more obvious in the recent reports covering the latest volatile pricing movements on the Australian and world share markets. Somehow it seems that the guys over at Intelligent Investor’s Bondi Junction offices had known it all before ahead and if you are one of the few naughty readers not acting on their advice and hence losing some of your money than, of course, you have only yourself to blame.

All and all though, the occasional free report coming out in the regular Intelligent Investor’s newsletter will definitely rank highly on my reading schedule. While I still do consider it one of the Australia’s best, I am not so certain that its subscription pricing makes them a true value pick of the Graham/Buffett style.

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Not so long ago I published here an article And so the battle of The Dow begins describing then upcoming takeover of one of the America’s business crown jewels by media magnate Rupert Murdoch. As the wheels of the business world hardly spin in direction Mr. Murdoch would not anticipate, it is now almost certain, that he will be soon counting this excellent media franchise amongst his very own.

As has been reported few days back, the US$5 billion takeover of Dow Jones & Co has been approved by the company’s board and its future now rest in hands of controlling shareholders, the Bancroft family.

The Bancroft’s, who hold around 64% of the voting stock initially rebuffed the Murdoch’s offer stating their concerns about editorial independence should the takeover go ahead. Lately, however, Bancroft’s appear much less united in their opinion as some of the family members are reportedly changing their minds.

One thing I would like to point out here is Murdoch’s negotiating approach to this deal. At first he seemingly stunned the company owners (and most of the investing world) with an $60 per share offer ie. offering a hefty premium to The Dow’s share price at the time. Since than, however, he dug in and stubbornly resisted all the pressure asking him to raise his offer.

Obviously some lessons to be learnt here from this mega successful and ultra experienced business icon: The big guys know the fair purchase price of a business they understand and are willing to pay it regardless of external conditions. They offer once, they offer big and you won’t see them haggling for “coins�? the way you are used to from market stall owners in Egypt or Persia.

In other words the majority of big guns’ offers are the “take it or leave�? kind. Perhaps you have read about similar tactics employed by the World’s savviest investor Mr. Warren Buffett and now The Dow’s takeover is a prime example, that the super successful media magnate Mr. Rupert Murdoch has been going around his business in this manner for who knows how long. Maybe we should think about this next time we miss out on a great investment just because the price was few cents higher than we intended to pay for it.

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