Buffett buys Marmon for $4.5 bn

NEW YORK: Billionaire Warren Buffett’s Berkshire Hathaway will pay $4.5 billion for 60% of Marmon Holdings, adding another family-run company that prospered without shareholder demands for short-term profits.

Chicago’s Pritzker family, which controls Global Hyatt, built Marmon into a group with $7 billion in annual sales and 125 units including operations that serve the railroad and energy industries. Operating income more than tripled from 2002 to 2007, Omaha, Nebraska-based Berkshire said.

Marmon has “businesses that are fairly niche-oriented where they have dominant positions established over time,” said Thomas Russo, who manages about $3.5 billion at Gardner Russo & Gardner in Lancaster, Pennsylvania and counts Berkshire as its largest holding. “They have a history under the Pritzkers of being liberated from the quarterly earnings game.”

Buffett, 77, built Berkshire over four decades, buying out- of-favour stocks and manufacturers to transform a failing textile maker into a $210 billion holding company. His biggest investment last year was the $4 billion purchase of Iscar Metalworking Cos from Israel’s Wertheimer family.

Berkshire, which had more than $45 billion in cash as of September 30, is as prepared as it has “ever been” to buy a “big business outright”, Buffett told shareholders at an annual meeting in May. He’s said he’s prepared to spend as much as $60 billion on the right company.

The Marmon acquisition is set to be completed in the first quarter of 2008, with Berkshire acquiring the remainder of the company by 2014 at a cost based on future earnings.

Marmon employs 21,500 people, mostly in North America, the UK, Europe and China, according to the company’s website. Its businesses include a dozen companies that manufacture wire and cable products for energy and construction use. The Chicago-based group also has a transportation-services operation that produces railroad cars and leases tank containers in China.

Operating income was $794 million last year, according to the website. The businesses “are not prone to widespread technical obsolescence,” Russo said. “They would have a relationship with their suppliers and customers that give them an ongoing partnership.”

Berkshire had about 217,000 employees as of December 31 in businesses ranging from auto insurer Geico and carpet manufacturer Shaw Industries to ice cream company International Dairy Queen and business-jet fleet operator NetJets.

The takeover is the largest announced by Buffett since 2005, when Berkshire’s utility company agreed to buy PacifiCorp from Scottish Power for $5.1 billion in cash and assume $4.3 billion in debt.