Monday, April 8, 2013

Buffett's Criteria For Purchasing a Business ($STP)

A correspondent writes in response to today's thoroughly sourced Bloomberg story:

1) there should be some sort of unresolved fraud on the part of management; preferably the business will be domesticated in an opaque oversees market in order to preserve some level of ambiguity with regard to this.

2) the best acquisitions targets are usually found in the manufacturing space, particularly if the industry is undergoing technological changes. Following his success with the original Berkshire Hathaway textiles business, Buffett has repeatedly said he is looking to purchase more factories that are likely to become obsolete

3) Above all else, Buffett is famous for saying that an acquirer pays a rich price for a rosy consensus. The ambiguity surrounding the future of this business, compounded with the potential simultaneous benefits of diversifying away from the US dollar and GAAP accounting make this a fat pitch.

At this point, the obvious concern for Buffett is that Icahn will try to outbid him and raise the price beyond what he is willing to pay, but this will be good for current shareholders. In any case, Icahn likely has his hands full with Dell at the moment, so Buffett might be able to snatch this one out from under the noses of shareholders.

The bottom line is that this is truly vintage Buffett. This acquisition will combine the best parts of the original Berkshire acquisition (obsolete manufacturing no one wants) with all of the excitement of his involvement with Solomon Brothers (there is never just one cockroach!). With Sokol gone, I expect Buffett and Munger to personally join the board, before leveraging the famous Berkshire balance sheet to provide current management with the unlimited non-recourse financing they were unable to secure previously, despite their obvious skill with financial engineering.

I have some calls in to a few "heavy hitters" about setting up a double leveraged long SunTech ETF (I think more than double leverage is inappropriate for a single-name ETF aimed at retail investors, but I am more conservative than most.)


Jason said...

For the stock to be worth anything, wouldn't Buffett have to pay off bank debt and bondholders first? Why would he do this if he could purchase assets after bankruptcy? Also wouldn't the bonds have jumped in price too if this was going to happen?

A Christian V said...

Typical bogus rumor. We saw a lot of these rumors during the recession with distressed companies. Seems like this is a magic bullet for pump and dump- questionable source (Chinese newspaper re-reported by Bloomberg this time I believe) says WB is interested, stock soars irrationally, works every time. I don't know why people continue to buy into this nonsense. The fact that bonds are not moving shows that it is day traders and penny stock gamblers moving on this, not anyone serious about holding this.

Steve said...

"The Company can regain compliance at any time during the six-month cure period if the Company's ADSs have a closing share price of at least $1.00 on the last trading day of any calendar month during the period and also has an average closing share price of at least $1.00 over the 30 trading-day period ending on the last trading day of that month or on the last day of the cure period.

The Company has notified the NYSE of its intention to cure this deficiency within the prescribed timeframe."

So, Suntech management is publicly stating it intends to get STP stock price above $1 within 6 months?

ECD Fan said...

I think management can succeed in its mission, by doing a 1-100,000,000 reverse split after Buffett buys the Global Solar Fund, in preparation for a merger with Sacra Corona Unita.

CP said...

"I come from out there, and everybody out there knows, everybody lies: cops lie, newspapers lie, parent's lyin'. The one thing you can count on - word on the street... yeah, that's solid"