The seller of Helzberg Diamonds, Barnett Helzberg was very pleased that it found a home within the Berkshire Hathaway family. He was able to step back from the business and devote more time to his family and philanthropic pursuits. The family were diversified now with a large holding in Berkshire which gained income from a broad spread of business sectors; and they could sell the highly liquid Berkshire shares at any time to diversify further.
Most importantly, the future of the company was in good hands. There was a solemn commitment from Buffett and Munger to continue the firm’s business philosophy, to retain the current associates and to maintain the corporate HQ in the Kansas City area.
Jeff Comment, CEO, expected his new boss to give him some instructions. Buffett did indeed ring him up the day after the sale (May 1, 1995), but all he said was “Guess what you get to do today. Start breaking all your banking relationships, because from now on I’m your bank.” (Jeff Comment in an interview with Robert P. Miles in The Warren Buffett CEO (2002) John Wiley).
Thus Buffett required control of capital allocation across the group. But apart from that, Comment was free to manage the business how he thought best “Berkshire hasn’t asked me to do anything that’s really changed the business”.
He told the Kansas City Star paper that Buffett had said that he doesn’t call his presidents but “I like hearing from you guys once in a while.”
Jeff Comment says that Buffett and he are very different people, but they really trust one another, and have a high degree of mutual respect. He thinks that is the case with all of Buffett managers, there is a sort of chemistry. “That chemistry is missing in a lot of businesses today. They’re functional, they’re tactically correct, but boy do you lose the passion, and you lose the love of the business. That doesn’t happen here…Warren is an incredibly cordial, warm, personable person.” (Bob Miles's book)
Why not put Borsheims and Helzberg together?
Most business groups already holding a jewellery retailer then adding another would instinctively look for “synergy”, such as buying economies or rationalising the store estate. They would put them under the same management. But Berkshire is no ordinary group.
First, Buffett had promised that the businesses would be largely autonomous, each with their distinctive cultures and leaderships.
Second the synergistic gains would be pretty small compared with the loss of focus, damage to the esprit de corps and confusion over strategy. On the latter point Buffett wrote in his 1995 letter that “Helzberg's…is an entirely different sort of operation from Borsheim's, our Omaha jewellery business, and the two companies will operate independently of each other.”
He expanded on that thought in at the Meeting in May 1996, “Both [Borsheims and Nebraska Furniture Mart] offer this incredible selection, low prices brought about by huge volume, low operating costs, and all of that. Operating multiple locations…you would lose something, in terms of the amount of selection that could be offered. There’s $50 million-plus at retail of jewellery at Borsheims’ one location. Well, when someone wants to buy a ring, or a pearl necklace, or something of the sort, they can see more offerings at a place like that than they possibly could at somebody who i………………To read more subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
Prof. Glen Arnold
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