In the financial realm, the partnership of Charlie Munger and Warren Buffett has been synonymous with success. However, their final endeavor to seal a significant deal together, utilizing Berkshire’s substantial $157 billion in cash, did not materialize. Munger, speaking in a recent CNBC special shortly before his passing, expressed hope that Berkshire Hathaway, armed with nearly $160 billion in cash and an outstanding credit rating, would eventually find its elusive “elephant” deal. This blog delves into the details surrounding this last attempt, shedding light on the enormous cash pile, the ongoing search for the elusive elephant-sized acquisition, and the potential role of the next generation in Berkshire’s strategic decisions.
The Enormous Cash Pile:
Berkshire Hathaway found itself in possession of an unprecedented cash reserve, reaching $157.2 billion by the end of September. Munger, in his characteristic wit, acknowledged the uniqueness of their situation. With a market value approaching $800 billion, the challenge was to find a deal substantial enough to absorb this colossal cash reserve. Despite last year’s acquisitions, including insurer Alleghany Corp. and Dominion Energy’s natural gas assets, Munger emphasized the need for a deal of mammoth proportions to make a significant impact.
The Search for the Elephant:
The quest for an “elephant-sized acquisition” has been a recurring theme in Buffett’s narrative. Despite recent purchases like Alleghany Corp. and Dominion Energy’s assets, none met the lofty expectations of an elephant deal. Munger suggested that the task might fall on the shoulders of the next generation of leaders at Berkshire. Moreover, he cited the potential involvement of individuals like Greg Abel and Ajit Jain. The challenge, Munger noted, lies in squeezing new lemons; indeed, fresh perspectives might be necessary to make the strategic decisions required for a deal of this magnitude.
The Next Generation’s Role:
Munger speculated about the involvement of Greg Abel, Berkshire’s vice chairman of non-insurance operations; moreover, Ajit Jain, vice chairman of insurance operations, or even Buffett’s investing lieutenants, Ted Weschler and Todd Combs, in steering the company toward a significant deal. He acknowledged the possibility of “somebody not yet identified” playing a pivotal role. This insight, indeed, underscores the dynamic nature of Berkshire’s leadership and the potential shift in decision-making responsibilities.
Adapting to Change:
In contemplating the search for an elephant deal, Munger recognized the need for adaptability and the possibility that a new generation of leaders might bring a fresh perspective. Berkshire, known for its patience and inaction when favorable opportunities are scarce, might witness a shift in approach under new leadership. Munger’s words hint at a willingness to embrace change and the recognition that different times may call for different strategies.
Defending Berkshire’s Inaction:
Throughout the years, Munger steadfastly defended Berkshire’s inaction in deploying its substantial cash reserve. Additionally, he highlighted the virtue of patience, emphasizing the benefits of sitting on the sidelines, letting cash accumulate, and waiting for opportune moments. Moreover, Munger’s perspective echoed the sentiment that, in the ever-changing landscape of the market, strategic patience can be a valuable asset.
In this exploration of Munger and Buffett’s last attempt at a significant deal with Berkshire’s $157 billion cash reserve, we’ve witnessed the enormity of the challenge they faced in finding a deal substantial enough to impact their colossal cash holdings. The ongoing search for an “elephant-sized acquisition” may require the next generation of leaders at Berkshire to bring fresh perspectives and adapt to new market dynamics. Munger’s insights highlight the complexity of strategic decision-making and the importance of embracing change in the pursuit of long-term success.