Warren Buffett, the legendary Oracl

Warren Buffett, the legendary Oracle from Omaha, was the CEO of the insuranceand holding company Berkshire Hathaway (see Exhibit 8). A student of Benjamin Grahamthe socalled father of value investing Buffett had made a career buying assets at rock-bottom prices andholding them until they paid off. Oftentimes, he provided a lifeline to companies experiencingfinancial distress, such as the once bankrupt Fruit of the Loom. Most of his investments were longtermBuffett claimed that he would not purchase a company for which he could not forecast thebalance sheet in 10 or 20 years. He summarized his investment strategy at an annual meeting: Workout how much it will pay out from now until Judgment Day, then discount it back and buy itcheaper.26Between 1997 and 2000, while many investors were pouring money into Internet stocks, BerkshireHathaway stuck to more traditional businesses such as timber and insurance, claiming that the valueof technology stocks had become decoupled from the values of the businesses that underlaythem.27 Following the collapse of the Internet bubble, Buffett, who was flush with cash, beganpurchasing assets in the troubled energy industry. Buffett publicly announced that he might spend asmuch as $15 billion in this sector over the next few years.28 Credit-crunched energy companiesseeking cash found a ready buyer in Buffet when other alternatives were scarce. This was felt to beideal for Buffett, who was said to like to be the only buyer in the fire-sale.29 Buffett startedacquiring energy assets in 2000, when he took a controlling stake in Iowa-based MidAmerican Energyfor $1.24 billion.In March 2002, MidAmerican purchased the 926-mile Kern River pipeline from Williams for $960million in cash and debt, or approximately eight times the expected cash flow of $120 million in 2002.30 MidAmerican paid $450 million in cash to Williams and assumed debt of $510 million. Thepipeline carried gas from Wyoming to California and was undergoing a massive expansion projectaimed at doubling its capacity. As the new owner of the pipeline, MidAmerican would assumeresponsibility for a projected $1.26 billion in capital expenditures. Commenting on the deal, Buffettsaid Williams has all the fundamentals in place solid assets, strong demand for its products and areputation for excellent customer service.31 Malcolm said that the transaction with Berkshire wouldallow Williams to reduce debt and increase cash flow .