Why did Warren Buffett bought bankrupt Fruit of the Loom in 2002? Warren Buffett bought the core business (apparel) of bankrupt Fruit of the Loom for $835 million in cash. With the purchase, Berkshire acquired two strong assets: an outstanding manager and one of the country’s best-known and best-loved brand names. It also acquired some $1.6 billion in debt, and a bitter history of ill will. Normally this is not what Buffett does, he buys companies, which have strong history of earning double digits over extended period of time. This time he went after a company, which regardless of what it was at one point was bankrupt in 2002.
It is a question, which was asked in my class this week and i decided to do some research. Few were surprised, when Fruit of the Loom filed for Chapter 11 bankruptcy protection in December 1999. The company’s shares by October 2001 were down to $0.23.
So why would the worlds best and smartest investor Warren Buffett be interested in a company, which was a mild reflection of what it used to be?
Two reasons:
First reason Strong brand: buffett loves strong brands and Fruit of the Loom had a very strong brand that offered growth potential under the right management, and the arrival of a man on a white horse or in an old Volkswagen.
Second reason Strong Management : John B. Holland had been a highly respected executive with Fruit of the Loom for more than twenty years, including several years as president and CEO, when he retired in 1996. In 2000, he was brought back as executive vice-president charged with revamping operations.
Holland represents a perfect example of the management qualities Buffett insists upon. Although publicly he remained largely silent about Farley, beyond a brief reference to “poor management,” Buffett has made no secret of his disdain for ex- ecutives who bully their boards into sweet compensation deals, and boards that allow it. In contrast, he is enthusiastically vocal about his admiration for Holland.
This tells you why Warren Buffett bought a failing company, if you have any other reasons, i would love to hear them.
Tags: bankrupt, bought, Buffett, buy, company, Warren