Pritzkers’ feud offers $4.5 billion opportunity to Buffett

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Dec 26 2007
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Silently, Warren Buffett could be one of the investors hoping for the much talked about recession to happen sooner rather than later to the US economy. It might sounds cruel but the fact is this legendary Oracle of Omaha has been waiting for opportunities – prices fall to rock-bottom levels. He might just have found one, though it’s a public listed company, before the end of 2007. His flagship Berkshire Hathaway (NYSE: BRK.A, stock) is buying 60% of Marmon Holdings Inc., which has about $7 billion in annual revenue.

On one side of the ring you’ve the second richest man in the world, Warren Buffett, who has $47 billion war-chest looking for acquisitions. On the other side of the ring you’ve the Pritzker Empire which is facing the 11-way split, due in 2011. The 11 siblings and cousins who were involved in the previous internal feuds would stand to get their shares should there be any more holdings not liquidated by 2011. The deal will help Pritzker family, which still controls the Hyatt hotel chain, to advance a plan to liquidate its holdings, which are estimated to be worth about $15 billion.

Berkshire buying MarmonThe Pritzker Empire was founded in Chicago more than a century ago by penniless Ukrainian immigrant Nicholas Pritzker who later became a successful lawyer. However it was his grandsons Jay (lawyer and deal maker) and Robert Pritzker (engineer) who began the family’s real estate business when Jay purchased the first Hyatt hotel in 1957. Jay’s death in 1999 saw the crumbling of the family’s empire.

It was reported that the $4.5 billion deal for a 60 percent stake in Marmon Holdings was sealed within two-weeks of negotiations. Berkshire will acquire the remaining 40 percent of Marmon over the next five or six years at a price that will be based on the future earnings of the company. Marmon posted revenue of $7 billion and profit of $1 billion in financial year 2006 from operations like wire and cable, railroad tank cars (something related to Warren’s existing railroad business) and water treatment systems.

Buffett said he likes “the kind of fundamental businesses” Marmon is in, and its position in those businesses. He said he plans to keep Marmon’s chief executive, Frank S. Ptak, in place, and hopes to add some “bolt-on acquisitions.” Hence with the uncertainty in the stock markets particularly in relation to the possibility of a US economy slowdown, it’s wise to allocate a good ratio of stocks against cash in hand.

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Mr Buffet may find he is over paying for Marmon, based on inflated copper prices.

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