Buffett shuns buyout funds, says `they don't know the business'

Warren Buffett, Berkshire Hathaway Inc.’s billionaire chairman, said he avoids acquiring companies from leveraged-buyout firms because they focus on “exit strategy.”

“We have an entrance strategy,” he said in pre-recorded remarks broadcast yesterday at a San Francisco conference for the International Corporate Governance Network, a London-based nonprofit whose members include institutional investors. Buyout firms “don’t know the business,” he said.

Buffett, 80, built Omaha, Nebraska-based Berkshire into a $205 billion provider of insurance, energy and consumer goods through four decades of stock picks and takeovers. He looks for companies with durable competitive advantages and leaves their managers in charge. He said he prefers to retain former owners after acquisitions, and let them run the business, because they have a “passion” for the company and “know it well.”

“I look in their eyes and see if they love the money or love the business,” Buffett said. “Everyone likes money,” he said. “We count on people loving the business.”

Buffett oversees chief executive officers running more than 70 Berkshire units, including car insurer Geico Corp., power producer MidAmerican Energy Holdings Co. and underwear maker Fruit of the Loom. Buffett, who doesn’t enforce a mandatory retirement age at Berkshire, says he avoids interfering with his managers.

“I give them their own paint brush,” Buffett said.

No Deals With Buyout Firms

Buffett spent $27 billion buying railroad Burlington Northern Santa Fe this year, telling Charlie Rose in an interview in November that Berkshire would hold the firm for a century. Buffett told employees of CTB Inc., the farm-products provider he bought in 2002, that Berkshire would own the unit “forever.”

Private-equity firms pool investor money to take over companies, financing the purchases mostly with debt, with the intention of selling them later for a profit. Blackstone Group LP, led by Chairman Stephen Schwarzman, 63, is the biggest private equity firm, followed by Carlyle Group.

“We haven’t bought a single company from an LBO operator,” Buffett said.

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