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Yesterday I heard one of many rumors about what might happen to Washington Mutual (NYSE: WM) and this one concerned "my pal Warren" having an interest in acquiring a position in the bank. At first I paid no attention but then I thought about how beautiful that would be. For Warren Buffett, it would elevate business to an art form, something he is admired for the world over.
In a previous post, Icahn should raid WaMu before Chase or Wells -- Act III, I had some thoughts about the corporate raider and value builder and all the strategic ramifications these intertwined companies might have; but that was all business.
For Warren Buffett, the Oracle of Omaha and chairman of Berkshire Hathaway (NYSE: BRK.A), a merger would surely be a thing of beauty. You see my fantasy goes like this: Berkshire acquires shares of WaMu in the open market, building a position as Buffett so often does in an undervalued company until he controls 8% to 10% of the stock. He then takes a seat on the board and creates his own merger & acquisition committee. From there, he negotiates a buyout with none other than Wells Fargo (NYSE: WFC) another bank he holds a major position in, a position that has been growing.
WaMu shares would escalate in value rapidly once it was learned that Buffett had bought in, raising the price WFC would have to pay. As long as Buffett calculated the deal to be a net gain for Berkshire Hathaway shareholders and WFC gained as I described in Wells chasing Chase for WaMu -- Act II, then you could hang the agreement in the Louvre right next to the Mona Lisa.
In my fantasy the story ends with Carl Icahn and James Dimon, CEO of J P Morgan Chase (NYSE: JPM) staring at the agreement from behind the ropes in the museum shaking their heads and smiling, astonished and envious that Buffett got their first, beating everyone to the deal -- again.
Message to Warren: Is there room for one more person on your committee? I want to help negotiate the deal!
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of BRK.B and WM.
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Reader Comments (Page 1 of 1)
3-12-2008 @ 3:03PM
bnku said...
The writer is in dream land.They have hugh losses in the home equity business,sub prime loans and credit cards.They are a good short.
3-12-2008 @ 3:18PM
Sheldon L said...
...or you have shorted it bnku...and want to secure your position.
3-12-2008 @ 9:08PM
Mr. noitall said...
I really don't think "your pal Warren" is interested in buying into WAMU. It's just not his style. He likes to buy into companies that already have good management in place. It's obvious to every one that this is just not the case at WAMU. Really, how can a value investor like Mr. Buffett see any value in a company that's run by a bunch of morons? He would have to go in there and clean house. I just don't see it happening. But, since we're fantasizing,...Warren....Mr. Buffett, could you please give me a job with a big fat salary? I know I've criitcized you at times, but you have to admire me for calling it like I see it, and speaking my mind. I'm sure you don't see any "value" in surrounding yourself with people or advisors who just kiss your butt all day long, do you? You need a straight-talker like me around to keep things balanced. If you decide to hire me, make sure you hire "my pal Sheldon" also. Take the time to check out Sheldon's track record, & mine too. Please contact Sheldon when you decide to make us an offer. Thank you very much Mr. Buffet.
3-12-2008 @ 9:20PM
Sheldon L said...
Dave, not only a straight talker (with some words worth thinking about most often) but you're too funny.
So consider this... my pal is not thinking about WaMu managment at all, he looks at them and sees Wells management in their place... and that management has been top notch.
3-12-2008 @ 11:56PM
thebigkill said...
WFC management, I agree, is top notch. And that's why the Omaha Oracle invested in WFC. WFC never sold option ARM's, and openly expressed the dangers an option ARM loan passes along to borrowers.
WM made a material error when they acquired Golden West. To give some history, Golden West was the largest mortgage originator in CA, focusing mainly on selling option ARM's, which helped them become the leader in the CA mortgage originations, essentially mirroring what Countrywide did nationally.
WM bought Golden West as a strategy to enter the CA market. Unfortunately, the management happened to buy Golden West just as CA home prices began to depreciate as quickly as they appreciated. So while a borrower's home is losing value daily, the borrower's debt is rising daily, increasing the potential losses twice-fold for the mortgage holder in the event of a borrower default. They bought high, and can't even sell it low because everyone understands the toxicity of option ARM's now. And this is WM's predicament.
It seems the Sandler family won that round handily.