Turmoil roiled Benjamin Moore, a paint company owned by Berkshire Hathaway, after it decided to break a pledge Warren Buffett (Trades, Portfolio) made to Moore’s dealers. How did it happen—and how did the Oracle of Omaha respond? A case study in pluses (and occasional minuses) of being owned by Berkshire.
Not long after Berkshire Hathaway acquired Benjamin Moore in 2000, Warren Buffett (Trades, Portfolio) appeared in a video that was sent to the company’s thousands of independent dealers, who sell the vast majority of Moore paints. Buffett knew that outside ownership was disconcerting for a company that, since its founding in 1883, had usually been run by a Moore descendant. Dealers worried that the new owner might decide there were bigger profits to be made by selling through the dealers’ bitter rivals, big-box giants Home Depot (HD, Financial) and Lowe’s (LOW, Financial).
Buffett tried to soothe those fears. “I made two main points in the tape,” he says today. “First, we buy businesses to keep. We don’t resell them. Berkshire was going to be a permanent home for Benjamin Moore.” Second, Buffett had no intention of abandoning the dealers—whom he calls the “lifeblood” of the operation—in favor of the giant chains. As he puts it, “I made them a promise that we would forever stick with the dealer system.”
Buffett emphasized on the video that he knows nothing about making paint. His plan was to stay out of the way and let the company run itself. It sounded like a quintessential Berkshire arrangement: Acquire an established, old-economy operation with good margins and steady results, stand aside, and reap the returns.
But this was one time where Buffett’s laissez-faire management style would fail him. Some years later, a Benjamin Moore CEO began pursuing a strategy that chipped away at Buffett’s pledge. By 2012 the CEO was nearing a deal—an agreement to sell through Lowe’s—that would have shattered the promise. Buffett got wind of the plan, intervened, and scotched the arrangement. But the damage was done: Dealers revolted and today, two years later, the company is still recovering from the tumult, still searching for ways to expand its sales, and still working to regain the trust of its 4,200 dealers.
Continue reading: http://fortune.com/2014/09/17/warren-buffett-benjamin-moore/
