At the start of 1995 an investment bank approached Bill Child with an offer to buy R. C. Willey Home Furnishings. The headline figure mentioned was $200m. This followed separate approaches by two publicly traded retailers. These were totally unsolicited. After looking around stores of the two retailers and being unimpressed by the way the furniture was presented Child decided that they were a poor fit for R. C. Willey.
As for the investment bank, the $200m was not all it seemed. The bank would only put up $100m in cash, borrowing the other $100m using R.C. Willey’s assets as collateral. The company would thus deteriorate from having a very conservatively managed balance sheet to a risky one. True, Bill and Sheldon would walk away with a lot of money, but their creation would be lumbered with debt, making it, and all the livelihoods that depended on it, vulnerable. They hated that thought.
Bill was 63 and, cognizant of his father-in-law’s death at 54, was fully aware that there was a possibility of him suddenly leaving a mess for his survivors to sort out. He wanted the business, with its loyal associates, customers and suppliers, to go on decades after his lifetime. This outcome was unlikely if he sold to one of Wall Street financial engineering players or to a less able retailer. Sheldon was six years younger and would be a natural successor, but he was increasingly drawn to the Church.
While pondering this problem, in January 1995, Bill attended the San Francisco Furniture Mart Trade Show where he met his old friend Irv Blumkin, CEO of Nebraska Furniture Mart. The Blumkin family had faced a similar issue in 1983 and found the solution to be to sell most of the shares in NFM to Berkshire Hathaway.
Bill was curious regarding life over the intervening 12 years. Irv responded in such positive terms – Buffett had kept every promise and was the best of business partners, and the family were still in managerial control – that Bill asked him “do you think Warren would be interested in buying our company?”
Irv greatly respected R. C. Willey as one of the best managed furniture businesses in the country and Bill as an excellent and principled manager. He said that Buffett would, most likely, be interested and offered to introduce Bill to Warren to explore the possibility.
Bill talked it over with Sheldon who immediately agreed that a sale to Berkshire would be an excellent solution. A few days later Bill asked Irv to please go ahead and contact Buffett. Irv was due to have dinner with Buffett a few days later and promised to raise R. C. Willey then.
It wasn’t the first time they had discussed R. C. Willey because for years Buffett had probed Irv with the question “Are there any more at home like you?” To which Irv had responded that scattered around the country were three other very well managed furniture retailers, one of which was R. C. Willey (the other two come into the Buffett story later). In his 1995 letter Buffett said that over the years Irv had told him about the company’s strengths, so he was already familiar with the firm.
Warren and Bill speak
In mid-February Irv rang to give Bill the good news. Buffett was really interested and would call. Only a few minutes later he did, “This is Warren Buffett, Bill. I just talked to Irv, and I understand you have an interest in selling your company.” (In Benedict, Jeff (2009) How to build a business Warren Buffett would buy: the R.C. Willey story)
Buffett was particularly keen to know why Bill wanted to sell. “I want to be sure the company continues beyond my lifetime. Second, if anything were to happen to me or my wife the business would have to be sold at a fire-sale price to pay the estate tax.” Child replied.
Buffett needed good management in pl………………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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