Berkshire Hathaway 1994 Annual Meeting Audience Question # 63

On whether Berkshire’s deal with Allianz was a good deal or not

Warren Buffett:

Zone 3?

Audience Member:

David… I’m sorry… David Swab from Austin, Texas.

I have a question pertaining to the convertible bonds that were outstanding for about four years.

Any thoughts on, if you’re a teacher, to grade if that was a good deal, bad deal, how the money was employed compared to the cost of getting out of the bonds? Any thoughts?

Warren Buffett:

Charlie what? Did you get that?

Charlie Munger:

He wants to know if you think, in retrospect, your deal with Allianz was a good deal for Berkshire.

Warren Buffett:

No, I would say that if I knew everything at the time that we did the Allianz deal… which was a convertible shareholder coupon debenture… if I knew everything now… then… that I know now, would we have done it? Probably pretty close. We had relatively few bonds converted when we called… when he called them. And so… that… it really wasn’t a negative in that sense.

But if we’d had more… we could have easily had a lot more converted. And that would not have been so good, obviously, if we’d ended up selling a lot of stock at 11,800 or whatever it was.

It’s very hard to measure exactly what we did with the 400 million or so that we took in at the time. So, money being fungible, separating that 400 million from other resources to measure the… what happened on the plus side from having the money… is hard to do.

But my guess is, if you could play the whole hand over again, it probably was maybe a tiny minus to have issued them. What do you think, Charlie?

Charlie Munger:

It’s certainly close to a wash.

Warren Buffett:

Yeah.

Charlie Munger:

Now, you could ask about USAir, and that is one we would have been well to duck.

Warren Buffett:

And I might say Charlie had nothing to do with that decision. He didn’t even know about it till I did it. And when he knew about it, hmmm.

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