Buffett, With Heinz Deal, Achieves 19th-Century Image of Robber Baron

Antoine Gara - The Street  FEB 14, 2013 2:00 PM

Many of the investor's companies date back 100 years or more, putting him alongside titans including Carnegie and Rockefeller.

 


For decades, Warren Buffett's fortune tied to Berkshire Hathaway (NYSE:BRK.A) has put the Oracle of Omaha in the same stead as industry titans J. Pierpont Morgan, Henry Ford, John Rockefeller, and Andrew Carnegie from 100 or more years ago.

As it turns out, by way of Berkshire Hathaway's recent acquisitions, Buffett would likely have been formidable competition for the likes of so-called robber barons Carnegie and Rockefeller had he been the product of an earlier century.

After the $28 billion acquisition of 144-year-old ketchup maker H.J. Heinz (NYSE:HNZ) on Thursday, Buffett's investing conglomerate, Berkshire Hathaway, increasingly traces its roots to the 19th century, when privileged men dominated US industry and formed some of America's largest corporations.

Increasingly, it appears that as Buffett's fortune swells to a reported $46 billion, Berkshire's acquisitions are beginning to solidify his place in US industry alongside the likes of billionaires from a past era.

In recent years, Berkshire's largest acquisitions target companies that served 19th-century westward expansion, peddled early mass market consumer products in the US, or were created in the throes of the Great Depression. The deals are indicative of Berkshire's focus on businesses that are insulated from competitors and have the consistent earnings to last a century or longer.

Berkshire's acquisitions, and a seeming focus on some of America's longest lasting and most iconic brands, also appear to play to Buffett's sense of history.

The deal for H.J. Heinz targets a Pittsburgh-based company that dates to 1869 and a small horseradish operation that grew to 57 brands and over $11.5 billion in annual revenue over the years.

For Berkshire Hathaway, the deal would be unique except for the fact that the investing conglomerate has long targeted 100-year-old businesses with distinctive products "moated" from competitors.

Berkshire's largest deal, the 2009 acquisition of railroad Burlington Northern Santa Fe, harkens back to mid-19th-century Chicago and the industrialization and westward expansion of the United States. Amid consolidation of the railroad industry over a span of decades, Burlington Northern Santa Fe reached its present state in the mid-1990s.

Berkshire's $26 billion bid put Buffett in the railroad business, where, a century prior, he would have been serving the needs of steel magnates like Carnegie or oil barons such as Rockefeller.

Other recent deals indicate a fondness for 19th-century startups over a new breed of corporate giants emerging from Silicon Valley.

In 2008, Berkshire provided key financing to Mars in its acquisition of Wrigley, a Chicago-based soap and baking products company known for its popular chewing gum that traces its history to 1891.

A November 2011 deal for newspaper conglomerate Omaha World-Herald indicates Buffett could have used ink, pulp, and opinionated broadsheets to publish fiery screeds against the robber barons of a past day and age. The $300 million deal for the Omaha World-Herald put a newspaper conglomerate that traces its heritage to the mid-1880s and a highly political editor, William Jennings Bryan, who opposed gold and the titans of early US industry, within Berkshire's coffers.

Other recent Berkshire deals would have never happened had target companies not survived the Great Depression or seen a business opportunity in its wake.

Berkshire's $9 billion deal for Lubrizol put a company in Buffett's growing portfolio of industrial businesses. Lubrizol, founded in 1928, incorporated to sell a graphite lubricant called Lubri-Graph. The company later expanded to a chemicals and materials behemoth that is a key supplier to the transportation and industrial sectors.

Berkshire bought insurer Geico (Government Employees Insurance Co.) for $2.3 billion in 1995, taking control of a business that was created in the throes of the Great Depression to insure federal employees and enlisted military officers.

In November, Berkshire paid $500 million for The Oriental Trading Co., a direct marketer of novelty products and toys founded in 1932. The company, formerly owned by private equity giant the Carlyle Group (NASDAQ:CG), was one of the earliest wholesale companies in the US.

Some deals even aim for the assets of titans of industry from a previous age, which blazed the trail for Berkshire's current diversified structure. In 2007, Berkshire bought a controlling stake in Marmon Group, a conglomerate spanning 125 businesses founded by Jay and Robert Pritzker, for $4.5 billion.

Even when targeting stock investments, Berkshire and Buffett largely avoid younger startups. Consider that Berkshire's largest technological holding is IBM (NYSE:IBM), a present-day tech heavyweight that traces its history to 1911 and mechanical business machines.

All told, Berkshire's $28 billion acquisition for H.J. Heinz may say as much about Buffett's long-term investing philosophy as it does about the Oracle's growing presence in the pantheon of American industry.

While Buffett is unequivocally one of the titans of present-day US business and finance, deals such as Berkshire's acquisition of Heinz indicate Buffett may be of a timeless breed.