Berkshire Hathaway 2005 Annual Report Download - page 6

Here are last year’ s purchases:
• On June 30 we bought Medical Protective Company (“MedPro”), a 106-year-old medical
malpractice insurer based in Fort Wayne. Malpractice insurance is tough to underwrite and has
proved to be a graveyard for many insurers. MedPro nevertheless should do well. It will have the
attitudinal advantage that all Berkshire insurers share, wherein underwriting discipline trumps all
other goals. Additionally, as part of Berkshire, MedPro has financial strength far exceeding that of
its competitors, a quality assuring doctors that long-to-settle claims will not end up back on their
doorstep because their insurer failed. Finally, the company has a smart and energetic CEO, Tim
Kenesey, who instinctively thinks like a Berkshire manager.
• Forest River, our second acquisition, closed on August 31. A couple of months earlier, on June
21, I received a two-page fax telling me – point by point – why Forest River met the acquisition
criteria we set forth on page 25 of this report. I had not before heard of the company, a
recreational vehicle manufacturer with $1.6 billion of sales, nor of Pete Liegl, its owner and
manager. But the fax made sense, and I immediately asked for more figures. These came the next
morning, and that afternoon I made Pete an offer. On June 28, we shook hands on a deal.
Pete is a remarkable entrepreneur. Some years back, he sold his business, then far smaller than
today, to an LBO operator who promptly began telling him how to run the place. Before long,
Pete left, and the business soon sunk into bankruptcy. Pete then repurchased it. You can be sure
that I won’ t be telling Pete how to manage his operation.
Forest River has 60 plants, 5,400 employees and has consistently gained share in the RV business,
while also expanding into other areas such as boats. Pete is 61 – and definitely in an acceleration
mode. Read the piece from RV Business that accompanies this report, and you’ ll see why Pete and
Berkshire are made for each other.
• On November 12, 2005, an article ran in The Wall Street Journal dealing with Berkshire’ s unusual
acquisition and managerial practices. In it Pete declared, “It was easier to sell my business than to
renew my driver’ s license.”
In New York, Cathy Baron Tamraz read the article, and it struck a chord. On November 21, she
sent me a letter that began, “As president of Business Wire, I’ d like to introduce you to my
company, as I believe it fits the profile of Berkshire Hathaway subsidiary companies as detailed in
a recent Wall Street Journal article.”
By the time I finished Cathy’ s two-page letter, I felt Business Wire and Berkshire were a fit. I
particularly liked her penultimate paragraph: “We run a tight ship and keep unnecessary spending
under wraps. No secretaries or management layers here. Yet we’ ll invest big dollars to gain a
technological advantage and move the business forward.”
I promptly gave Cathy a call, and before long Berkshire had reached agreement with Business
Wire’ s controlling shareholder, Lorry Lokey, who founded the company in 1961 (and who had
just made Cathy CEO). I love success stories like Lorry’ s. Today 78, he has built a company that
disseminates information in 150 countries for 25,000 clients. His story, like those of many
entrepreneurs who have selected Berkshire as a home for their life’ s work, is an example of what
can happen when a good idea, a talented individual and hard work converge.
• In December we agreed to buy 81% of Applied Underwriters, a company that offers a combination
of payroll services and workers’ compensation insurance to small businesses. A majority of
Applied’ s customers are located in California.
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