The Johns Manville odyssey
professionalroofing.net
Berkshire Hathaway’s purchase of Johns Manville has helped reposition the building products manufacturer
by Ambika Puniani
Picture this: You're driving Warren Buffett, chairman of Omaha, Neb.-based Berkshire Hathaway Inc. and one of the wealthiest men in the world, to the airport. Now picture Buffett turning to you and saying, "You know, in 10 years, you'll be just like me."
This happened to Jerry Henry, chief executive officer (CEO) of Johns Manville, Denver, shortly after Berkshire Hathaway finalized a $2.2 billion deal to buy Johns Manville.
"I almost ran off the road," Henry says of the encounter. "I said, 'Warren, I'll never have that kind of money.' And he said, 'This is not at all about money. You'll be just like me—you'll be tap-dancing to work every day.'"
That's the kind of energy 70-year-old Buffett brings to the more than 30 companies he owns. And Henry is extremely pleased he brought that attitude to Johns Manville—as well as pulled the company out of a frustrating ownership situation.
The deal
How Berkshire Hathaway purchased Johns Manville happened in a way Henry calls "vintage Buffett."
On June 23, 2000, Johns Manville announced a merger agreement with Hicks, Muse, Tate & Furst and Bear Stearns Merchant Banking, New York. Johns Manville had been seeking a buyer for some time, primarily to relieve itself from the control of the Manville Personal Injury Settlement Trust, a controlling body set up soon after Johns Manville emerged from Chapter 11 bankruptcy. (For more information about Johns Manville's recent history, see "The Johns Manville odyssey," page 21.)
But by the Wednesday before Thanksgiving, Henry suspected the deal with the investment firms might fail for various reasons, primarily financing difficulties.
Henry was confronting several issues involving Johns Manville, the buyers and the trust, as well as personal issues.
Henry had decided that if the deal with Hicks, Muse, Tate & Furst and Bear Stearns Merchant Banking was unsuccessful, he would leave Johns Manville and return to the East Coast, where he had lived for many years. In fact, he and his wife already had sold their home in Denver.
"Last Thanksgiving was not a happy time in my household," Henry says.
During this time, John Cummings, Johns Manville's director of investor relations, noticed someone was buying large amounts of Johns Manville stock. After some investigating, Cummings thought he had a pretty good idea who the buyer was and brought his suspicions to Henry.
"John tells me he thinks Warren Buffett is buying our stock," Henry recalls. "So I decided to call Buffett though I didn't know whether he would take my call."
Buffett took the call and acknowledged he was buying Johns Manville stock. When Henry asked him about his intentions, Buffett laughed and, Henry says, told him, "If your deal falls through, I will make an offer to buy the company."
The following Thursday and Friday (Dec. 7 and 8, 2000), the company held a board of directors meeting during which it was announced that the deal with Hicks, Muse, Tate & Furst and Bear Stearns Merchant Banking had failed to materialize. Henry then told the board that Buffett was interested in buying Johns Manville—in cash.
Ultimately, the board unanimously approved the ensuing offer. But when senior staff members at Johns Manville were informed a few days later, they were almost too exhausted to celebrate.
"We began to explore strategic alternatives in 1998. We didn't publicly announce them until January 1999," says Bart Roggensack, vice president and general manager of Johns Manville's Roofing Systems Group. "On Monday, Dec. 11, when we were told about Buffett's offer, we were mentally, physically and emotionally drained. We were numb—we still hadn't recovered from the failure of the other deal."
But Roggensack and his counterparts had little reason to become stressed again. Buffett required no further information from the company, which meant Johns Manville employees did not have to prepare for another arduous due-diligence process as they had with previous potential buyers. Buffett already had conducted what due diligence he believed was necessary, and on Dec. 19, 2000, Berkshire Hathaway bought Johns Manville for $13 per share.
To Buffett, the deal was only one of eight during 2000.
Berkshire Hathaway
Buffett's management of Berkshire Hathaway can best be described as amazing. During the 36 years Buffett has been at the company's helm, it has averaged 23 percent growth a year. During 2000, the company posted an earnings increase of 31 percent. The year-end price of Berkshire Hathaway stock (in February) was $71,000 per share, according to Fortune magazine.
Buffett has made his money mainly through intelligent acquisitions, which range from insurance companies, such as National Indemnity, GEICO and General Re, to See's Candies and Kirby, which manufactures vacuum cleaners. In addition, the company is a major stockholder of Coca Cola (8 percent) and Gillette (9 percent). Berkshire Hathaway also has stock holdings in American Express and The Washington Post Co.
The other seven acquisitions Buffett made during 2000 were MidAmerican Energy, a utility company of which Berkshire Hathaway owns 76 percent; Cort Business Services, a rental furniture company; United States Liability, another insurance company; Ben Bridge Jeweler; Justin Industries, a company that markets bricks and boots; Shaw Industries, a carpet manufacturer; and Benjamin Moore, a paint company.
Henry says when he met with other CEOs of Berkshire Hathaway companies, he recalls one CEO pulling him aside and saying, "You won't believe how good it's going to be."
And Henry is beginning to believe it.
What's in store
Roggensack says that for Johns Manville, a Berkshire Hathaway subsidiary, it will be anything but business as usual.
"We are financially sound and healthy," Roggensack says. "Johns Manville is a focused corporation—we can now pay more attention to operating our business."
Henry agrees: "We have no distractions about someone buying us, and now we have a stable owner. We're in a great position to move forward."
To Henry, moving forward means aggressively seeking acquisitions that complement Johns Manville's current offerings, as well as investing capital in existing facilities and opening new manufacturing plants.
Roggensack stresses that Johns Manville's roofing business will continue to grow. He does not anticipate any significant changes in operations or product line as a result of the acquisition.
"Morale is higher than ever," he says. "We're motivated and focused on our customers."
Despite employee enthusiasm and a more "focused" focus, Henry notes that Johns Manville's financial success in the near future greatly depends on the state of the U.S. economy. And though Roggensack is concerned about the economic outlook, he doesn't think the roofing industry will suffer too much.
"We have a good outlook—not great," Roggensack says. "The private sector is soft, but the institutional side is healthy."
But a slow economy still would be OK—earnings isn't all Buffett is after.
"Warren basically said we can afford to lose money over the short term but not one shred of reputation," Henry says with incredulity. "I've never heard anyone talk in those kinds of terms."
Although it will take some time to see how well Johns Manville fits into the Berkshire Hathaway portfolio, Henry and his employees are relieved a burden has been lifted from the company.
"Am I tap-dancing to work yet?" Henry asks. "No. But I am walking a little bit faster."
Ambika Puniani is the editor of Professional Roofing magazine
The Johns Manville odyssey
Denver-based Johns Manville could be regarded as a sacrificial lamb of the building products manufacturing community. As one of the first to be hit with multibillion-dollar lawsuits stemming from its production of asbestos-containing products, as well as among the first to file bankruptcy as a result of litigation, Johns Manville's rebound was watched closely by the roofing industry. It took the company nearly 20 years to recover from its staggering reorganization and legal fees, and many of its competitors who may face the same demise now can turn to Johns Manville as an example.
With the purchase of Johns Manville by Omaha, Neb.-based Berkshire Hathaway came what Johns Manville Chief Executive Officer Jerry Henry calls the end of a 20-year odyssey. Following is a brief time line detailing the recent history of Johns Manville:
1945 The U.S. government mandates that Navy vessels be insulated with asbestos-containing products.
1974 Johns-Manville Corp. is a leading manufacturer of fiberglass, asbestos-cement pipe and PVC pipe.
1981 The company is renamed Manville Corp.
1982 Manville Corp. files for Chapter 11 in the U.S. Bankruptcy Court as a result of mounting asbestos litigation claims.
1983 The company's first reorganization plan is filed, and Manville Corp. seeks to put claimants in asbestos litigation on the same level as other creditors to systematically handle claims.
1986 Manville Corp. files a second reorganization plan.
1988 Manville Corp. emerges from Chapter 11, and the Manville Personal Injury and Property Damage Settlement Trusts are established.
1991 Manville Corp. forms a holding company structure divided into Manville Sales Corp. and Manville Forest Products.
1992 Manville Sales Corp. is renamed Schuller International Group Inc.
1994 A settlement is reached in a class-action lawsuit addressing asbestos claims, and the Manville Personal Injury Settlement Trust begins paying claims. Schuller completes an initial public bond offering and uses the proceeds to satisfy fixed-income obligations to the trust.
1996 The company changes its name to Schuller Corp.
1997 The company changes its name to Johns Manville Corp.
1998 The company's outstanding debt is refinanced, and 3.6 million shares are bought back from the Manville Personal Injury Settlement Trust.
2000 Johns Manville's merger agreement with Hicks, Muse, Tate & Furst and Bear Stearns Merchant Banking, New York, fails, and Berkshire Hathaway makes a purchase offer.
2001 Berkshire Hathaway buys Johns Manville for $13 per share. |
