Why You Should Never Want To Be the Next Buffett, and Why GE's Breakup Doesn't Mean the End of Conglomerates

I have no idea why it happens so much, but inevitably a rising star wants to be the next fill-in-the-blank... The obvious target for many on Wall Street is Berkshire Hathaway's (BRK-B) Warren Buffett. I started thinking about this when I was reading reporter Jamie Powell's brilliant piece earlier this week in the Financial Times […] Not rendering correctly? View this e-mail as a web page [here](. [Empire Financial Daily] Why You Should Never Want To Be the Next Buffett, and Why GE's Breakup Doesn't Mean the End of Conglomerates By Herb Greenberg I have no idea why it happens so much, but inevitably a rising star wants to be the next fill-in-the-blank... The obvious target for many on Wall Street is Berkshire Hathaway's (BRK-B) Warren Buffett. I started thinking about this when I was reading reporter Jamie Powell's brilliant [piece]( earlier this week in the Financial Times about Chamath Palihapitiya, the famous Facebook (FB) billionaire who is now better known as venture capitalist-turned-special-purpose acquisition-company ("SPAC") king... via his venture fund, Social Capital. Like Buffett, Palihapitiya bought an insurance company to be the centerpiece of his empire. Last November, he went so far as to tweet: Metromile (MILE), a car insurer, went public in February. As Powell points out, two days later, Bloomberg Business Week ran a story headlined, "The King of SPACs Wants You to Know He's the Next Warren Buffett." In it, Palihapitiya touted that he wants "to have a Berkshire-like instrument that is all things, you know, not to sound egotistical, but all things Chamath, all things Social Capital." And then, almost as if scripted... the froth in the SPAC market dissipated. MILE shares have since plunged by around 80%. The kicker? Earlier this week, Lemonade (LMND), another insurer that went public last year, announced it's buying Metromile... The price was somewhere between $200 million and $500 million, depending on how it's valued – either way, stunningly below its peak market value. That prompted Powell to write: We're not sure about you. But we can't remember Buffett losing 80% on Geico in the space of nine months. And then the company being taken private. This gets to my broader point: If you're really that good, wouldn't it be better for people to want to be the next you, rather than you being the next, say, Buffett? After all, a copy is never as good as the original. Moving on, here's why we aren't seeing the end of conglomerates...    The easy kneejerk reaction to General Electric's announcement that it is breaking itself up is that conglomerates are dead. Conglomerates have been dying over and over and over again for decades, only to be rebuilt, reinvented, and often, also relegated to the junk heap... over and over and over again. The reason? On Wall Street, there's a never-ending wash, rinse, repeat cycle. Or as short-seller Carson Block put it on Twitter (TWTR) the other day... Everybody gets paid (execs, bankers, lawyers) to consolidate rationalizing low cost of cap and core strengths are transferrable. Then everybody gets paid to deconsolidate rationalizing focus is preferable. McKinsey consultants will support each wave. Over and over and over again... --------------------------------------------------------------- Recommended Links: [America's top stock cop just issued a massive warning to investors]( A major shift could be coming for the stock market. Why won't the mainstream media tell you what's coming? [Find out right here](. --------------------------------------------------------------- [Jeff Brown's big (tech) announcement]( For the first time, angel investor Jeff Brown is revealing the details on his No. 1 private, pre-IPO tech company to buy today. Anyone can buy shares of this company... However, only people who RSVP can view this presentation. [Click here now to register](. --------------------------------------------------------------- And in the process, they almost always stretch too far all in the name of diversification... As if it's a magic elixir that promises to fix a company for seasons – and cycles – to the point that you often can't help but wonder: What could they possibly have been thinking? For instance, GE buying – and eventually selling – such companies as the TV network NBC, the brokerage firm Kidder Peabody, and a CAD-CAM company. The latter was bought from UTC, another conglomerate – the smart seller, no doubt – that ultimately merged with yet another conglomerate, Raytheon Technologies (RTX). Or Raytheon itself, best known as a defense contractor, which once somehow owned a publisher of textbooks. (Textbooks, really?!) And who can forget Tyco? It was so taken with its deal-making genius that at one point it added the biggest manufacturer of generic baby diapers to its menagerie of far-flung businesses, which included a tool-and-die maker and the security company ADT (ADT). As a reporter in Chicago in the 1980s, I covered my share of conglomerates that have come and gone, such as those spawned from Chicago railroads... Notably, IC Industries (the old Illinois Central railroad, which ultimately owned Whitman Chocolates and Old El Paso tacos) and Northwest Industries (the old Chicago and North Western Railway, which went on to own Fruit of the Loom underwear, plus companies that made boots and batteries)... And there was the time Kraft Heinz (KHC) merged with Dart Industries, which wound up mixing Kraft Macaroni & Cheese with Duracell batteries and Tupperware (TUP). At the time, it was one of the biggest mergers in U.S. history. The thought was that fast-growing Tupperware would offset slow-growing Kraft. It sounded good on paper, except Tupperware started to slow, and six years later, the marriage proved to be so unappetizing the company took the Veg-O-Matic to itself. Then there was one of the worst corporate creations of all... the transformation of Beatrice Foods into Beatrice Companies. In that deal, the owner of such brands as Orville Redenbacher's popcorn and Tropicana orange juice, which once was best known for its Meadow Gold Dairies, had the genius idea to build a company that included the likes of Avis (CAR) and Samsonite. (This one didn't even make sense on paper!) All of which gets us back to the bust-up of GE, and the bigger question... who's next? One thing you can almost count on, like the sun rising each day, is that one deal begets rumors of others. In this case, all eyes are on anything considered an industrial conglomerate... You know, companies rooted in heavy industry. That group has been de- and re-conglomerating in various incarnations as long as I've been around. Names already [making the rounds]( include 3M (MMM), Loews (L), and even (perish the thought!) Berkshire Hathaway. But the question is, will the companies themselves start talking about looking for ways to "enhance shareholder value" (code for breakup)? Or will activists start knocking on doors (assuming they already haven't)? Or... are those companies themselves already protected against both? 3M has an overhang of potential litigation risk tied to a chemical that can act like Kryptonite to keep unwanted suitors. And both Loews and Berkshire, run by founders, are unlikely to give up without a fight. They may not have to because rumors following deals tend to come in waves. Given the "hours if not minutes" nature of news cycles these days, this discussion may already be moot. In the mailbag, regarding my column earlier this week on Allbirds (BIRD)... and how it had stopped calling its IPO a "sustainable public equity offering"... As always, feel free to reach out via e-mail by [clicking here](mailto:feedback@empirefinancialresearch.com?subject=Feedback%20for%20Herb). And if you're on Twitter, feel free to follow me there at [@herbgreenberg](. My DMs are open. I look forward to hearing from you. "Herb, I read your column about Allbirds with disbelief. I'm all for ESG, but this left me shaking my head. SPO [for sustainable public equity offering] = Stupid People Operating. "Keep up the entertaining columns." – Sherwin R Herb comment: Thanks, Sherwin. Glad you are enjoying them. We see this repeatedly with IPOs... management trying to create new metrics or convince investors they should be viewed differently than everybody else when the only thing that should really matter is whether they are or will grow and make money. Some companies, of course, get a pass on the money-making part of it if the "narrative" is intact. That gets to a broader issue that may be column-worthy one day: Narrative versus fundamentals... which is more important? Finally, speaking of Allbirds, it turns out two days before my column was published, the Financial Times ran a [story]( quoting the chief financial officer as saying the company killed the term SPO after the Securities and Exchange Commission ("SEC") balked. There were no details, and surprisingly – something I had looked for in the SEC database – no public correspondence with the SEC. That should be interesting reading if, or when, it shows up. Regards, Herb Greenberg November 12, 2021 If someone forwarded you this e-mail and you would like to be added to my e-mail list to receive e-mails like this every weekday, simply [sign up here](. © 2021 Empire Financial Research. All rights reserved. Any reproduction, copying, or redistribution, in whole or in part, is prohibited without written permission from Empire Financial Research, 601 Lexington Ave., 20th Floor, New York, NY 10022 [www.empirefinancialresearch.com.]( You received this e-mail because you are subscribed to Empire Financial Daily. [Unsubscribe from all future e-mails](