Berkshire Hathaway: From Textile Mills to Insurance and Beyond
Berkshire Hathaway began as a textile manufacturer, with the company taking shape through a merger in 1955. Hathaway Manufacturing Company joined Berkshire Fine Spinning Associates. Berkshire Associates took its name from Berkshire County, Massachusetts, while Hathaway Manufacturing was named for its founder, Horatio Hathaway. After the merger, the company had more than a dozen plants and thousands of workers. Those details place the beginning firmly in manufacturing: plants, workers, and a business producing textiles preceded the sprawling collection of businesses that came later.
The mills were already contracting before Warren Buffett took control. Seven locations had closed by the end of the 1950s, accompanied by large layoffs. Buffett began buying shares in 1962 for Buffett Partnership Ltd., paying $7.50 per share. His initial plan depended on the company's liquidation of textile mills: he anticipated a tender offer that would let him sell his shares at a profit. A year later, his fund owned 7% of the company. The opening move was therefore a stock purchase tied to a shrinking industrial business, rather than the launch of a new collection of insurance companies and other holdings.
In 1964, Buffett offered to sell his shares back for $11.50 each. Manager Seabury Stanton told him orally that they had a deal, but the written tender offer arrived at $11.375 per share. Buffett later said the lower offer made him angry. Instead of accepting it, he bought more shares at an even higher price, aiming to take control and remove Stanton. Stanton and his son resigned in 1965. Berkshire Hathaway became the vehicle for Buffett's expanding business interests, but that turn left his fund holding a major interest in a declining textile operation. The ownership change did not erase the mills' difficulties.
Buffett later described the textile purchase as his biggest investment mistake. His estimate was that it had denied him compounded investment returns of about $200 billion over the following 45 years. He also estimated that putting the same money directly into insurance businesses would have left Berkshire worth about twice as much. These were his assessments of the opportunity he had passed over, with the original business continuing for years after his takeover. The final textile operations closed in 1985, marking the end of the manufacturing activity that had brought the merged company into existence.
Insurance entered the picture in March 1967, when Berkshire Hathaway acquired National Indemnity Company and National Fire & Marine for a combined $8.6 million. Based in Omaha, Nebraska, National Indemnity had been founded in 1940 by Jack Dabney Ringwalt. The purchase was the company's first acquisition under Buffett's control and its entrance into insurance. Another insurance relationship began in 1976 with an investment in GEICO, which was facing financial difficulty and had a very low stock price. Full ownership followed in January 1996, when the company purchased the 49% it did not already own for $2.3 billion. GEICO primarily offers private passenger automobile insurance directly to individual consumers in the United States.
Food and retail businesses added another dimension. See's Candies joined Berkshire Hathaway in 1972 for $25 million. The company produces boxed chocolates and other confectionery products in large kitchens in California, with approximately 50% of annual revenue earned in November and December. By 2019, that purchase had returned over $2 billion to its owner. Nebraska Furniture Mart followed in 1983. Dairy Queen was acquired on January 7, 1998, for approximately $590 million; its franchised stores operate under the Dairy Queen, Orange Julius, and Karmelkorn names. Their offerings include dairy desserts, beverages, prepared foods, blended fruit drinks, popcorn, and other snack foods.
Transportation and aviation widened the range again. FlightSafety International was acquired in December 1996, adding a pilot training company that uses flight simulators. The company now known as NetJets followed on August 7, 1998, for approximately $725 million, including $350 million in cash and the remainder in Berkshire shares. Its business centers on fractional ownership programs for general aviation aircraft, a concept it introduced in 1986. Rail transportation arrived through a stake in BNSF Railway: an initial 10.9% interest was acquired in April 2007 for $3.23 billion. In February 2010, the remaining portion was purchased for $26 billion. That transaction was the largest acquisition in the company's history at the time, putting a railroad alongside its other operating businesses.
The expansion also reached materials used in homes and commercial buildings. In December 2000, Berkshire Hathaway acquired Benjamin Moore & Co., which formulates, manufactures, and sells architectural coatings available primarily in the United States and Canada. Buffett agreed that its products would not be sold through major retail chains. Johns Manville joined in February 2001, adding fiberglass wool insulation products for homes and commercial buildings, as well as pipe, duct, and equipment insulation. Clayton Homes was acquired in August 2003 for $1.7 billion.