What BRK has recently bought:
"Acquisitions of 1997
In 1997, we agreed to acquire Star Furniture and International Dairy Queen (a deal that closed early in 1998). Both
businesses fully meet our criteria: They are understandable; possess excellent economics; and are run by outstanding people.
The Star transaction has an interesting history. Whenever we buy into an industry whose leading participants aren't known
to me, I always ask our new partners, "Are there any more at home like you?" Upon our purchase of Nebraska Furniture Mart
in 1983, therefore, the Blumkin family told me about three outstanding furniture retailers in other parts of the country. At the
time, however, none was for sale.
Many years later, Irv Blumkin learned that Bill Child, CEO of R.C. Willey -- one of the recommended three -- might be
interested in merging, and we promptly made the deal described in the 1995 report. We have been delighted with that
association -- Bill is the perfect partner. Furthermore, when we asked Bill about industry standouts, he came up with the
remaining two names given me by the Blumkins, one of these being Star Furniture of Houston. But time went by without there
being any indication that either of the two was available.
On the Thursday before last year's annual meeting, however, Bob Denham of Salomon told me that Melvyn Wolff, the
long-time controlling shareholder and CEO of Star, wanted to talk. At our invitation, Melvyn came to the meeting and spent his
time in Omaha confirming his positive feelings about Berkshire. I, meanwhile, looked at Star's financials, and liked what I saw.
A few days later, Melvyn and I met in New York and made a deal in a single, two-hour session. As was the case with the
Blumkins and Bill Child, I had no need to check leases, work out employment contracts, etc. I knew I was dealing with a man
of integrity and that's what counted.
Though the Wolff family's association with Star dates back to 1924, the business struggled until Melvyn and his sister
Shirley Toomin took over in 1962. Today Star operates 12 stores -- ten in Houston and one each in Austin and Bryan -- and
will soon move into San Antonio as well. We won't be surprised if Star is many times its present size a decade from now.
Here's a story illustrating what Melvyn and Shirley are like: When they told their associates of the sale, they also
announced that Star would make large, special payments to those who had helped them succeed -- and then defined that group
as everyone in the business. Under the terms of our deal, it was Melvyn and Shirley's money, not ours, that funded this
distribution. Charlie and I love it when we become partners with people who behave like that.
The Star transaction closed on July 1. In the months since, we've watched Star's already-excellent sales and earnings
growth accelerate further. Melvyn and Shirley will be at the annual meeting, and I hope you get a chance to meet them.
Next acquisition: International Dairy Queen. There are 5,792 Dairy Queen stores operating in 23 countries -- all but a
handful run by franchisees -- and in addition IDQ franchises 409 Orange Julius operations and 43 Karmelkorn operations. In
190 locations, "treat centers" provide some combination of the three products.
For many years IDQ had a bumpy history. Then, in 1970, a Minneapolis group led by John Mooty and Rudy Luther took
control. The new managers inherited a jumble of different franchising agreements, along with some unwise financing
arrangements that had left the company in a precarious condition. In the years that followed, management rationalized the
operation, extended food service to many more locations, and, in general, built a strong organization.
Last summer Mr. Luther died, which meant his estate needed to sell stock. A year earlier, Dick Kiphart of William Blair &
Co., had introduced me to John Mooty and Mike Sullivan, IDQ's CEO, and I had been impressed with both men. So, when
we got the chance to merge with IDQ, we offered a proposition patterned on our FlightSafety acquisition, extending selling
shareholders the option of choosing either cash or Berkshire shares having a slightly lower immediate value. By tilting the
consideration as we did, we encouraged holders to opt for cash, the type of payment we by far prefer. Even then, only 45% of
IDQ shares elected cash.
Charlie and I bring a modicum of product expertise to this transaction: He has been patronizing the Dairy Queens in Cass
Lake and Bemidji, Minnesota, for decades, and I have been a regular in Omaha. We have put our money where our mouth is."
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