Berkshire 1998

Berkshire Hathaway Inc.

Berkshire Hathaway traces its roots to a textile manufacturing company established by Oliver Chace in 1839 as the Valley Falls Company in Valley Falls, Rhode Island. Chace, who was a carpenter, started working for Samuel Slater, the founder of the first successful textile mill in America. Chace founded his first textile mill in 1806. In 1929, the Valley Falls Company merged with the Berkshire Cotton Manufacturing Company established in 1889, in Adams, Massachusetts. The combined company was known as Berkshire Fine Spinning Associates.

In 1955, Berkshire Fine Spinning Associates merged with the Hathaway Manufacturing Company which had been founded in 1888 in New Bedford, Massachusetts, by Horatio Hathaway with profits from whaling and the China Trade. Hathaway had been successful in its first decades, but it suffered during a general decline in the textile industry after World War I. At this time, Hathaway was run by Seabury Stanton, whose investment efforts were rewarded with renewed profitability after the Great Depression. After the merger, Berkshire Hathaway had 15 plants employing over 12,000 workers with over $120 million in revenue and was headquartered in New Bedford. However, seven of those locations were closed by the end of the decade, accompanied by large layoffs.

In 1962, Warren Buffett began buying stock in Berkshire Hathaway after noticing it was statistically undervalued. Buffett bought the stock with the idea that as Berkshire closed textile mills and freed up capital, there would be a tender offer at some point, and he could sell the stock for a profit. Eventually, Buffett acknowledged that the textile business was waning, and the company's financial situation was not going to improve. In 1964, Seabury Stanton, the CEO of Berkshire Hathaway, made an oral tender offer to buy back Buffett's stake in the company for $11.50 per share. Buffett agreed to the deal. A few weeks later, however, when Warren Buffett received the deal in writing, the tender offer was for only $11.375 per share. The undercutting angered Buffett. Instead of selling at the slightly lower price, Buffett decided to buy more of the stock to take control of the company and fire Stanton (which he did). However, this made Buffett the majority owner of a failing textile business.

Buffett initially maintained Berkshire's core business of textiles, but by 1967, he was expanding into the insurance industry and other investments. Berkshire first ventured into the insurance business with the purchase of National Indemnity Company. In the late 1970s, Berkshire acquired an equity stake in the Government Employees Insurance Company (GEICO), which forms the core of its insurance operations today (and is a major source of capital for Berkshire Hathaway's other investments). In 1985, the last textile operations (Hathaway's historic core) were shut down.