Wesco Financial
Company Overview
Wesco Financial Corporation was a Berkshire Hathaway subsidiary that Charlie Munger ran as chairman for more than 30 years — from 1973 until Berkshire fully absorbed Wesco in 2011. Wesco owned insurance companies, industrial businesses, CORT Business Services (furniture rental), and a financial services operation anchored by a substantial investment portfolio.
Investment Story
1972–1973: The complex acquisition. Berkshire and Charlie Munger's personal investment vehicle acquired control of Wesco Financial — a savings and loan holding company in Pasadena, California — through a series of transactions in 1972-73 that were later investigated by the SEC (and ultimately cleared) for alleged market manipulation. The acquisition was unusual because Berkshire and Munger actually raised the offer price to prevent another bidder from acquiring the company at what they considered an inadequate price to Wesco minority shareholders.
Munger's tenure (1973–2011). For 38 years, Munger held the annual Wesco shareholders meeting in Pasadena — a smaller, more intimate version of Berkshire's Omaha event. Value investors made pilgrimages to hear Munger speak on business, investing, and life philosophy. The meetings became legendary for Munger's candor and intellectual breadth.
Key subsidiaries. Wesco's primary operating businesses included Kansas City Precision Industries (manufacturing), CORT Business Services (furniture rental), Wesco-Financial Insurance Company (conventional and structured settlement insurance), and the Kansas Bankers Surety Company. Throughout Munger's stewardship, the investment portfolio grew substantially, providing Wesco with additional floating capital.
2011: Merger into Berkshire. Berkshire completed the acquisition of Wesco's minority shareholders for $383 per share, valuing Wesco at approximately $5.5 billion — a substantial premium to book value. The merger simplified Berkshire's corporate structure.
Buffett's Own Words
See's Candy Shops subsidiary as well as Wesco Financial Corporation, a 54% owned subsidiary engaged in the savings and loan business. We expect Blue Chip Stamps to achieve satisfactory earnings in future years related to capital employed, although certainly at a much lower level than would have been achieved if the trading stamp business had been maintained at anything close to former levels. Your Chairman is on the Board of Directors of Blue Chip Stamps, as well as Wesco Financial Corporation, and is Chairma
See’s Candy Shops subsidiary as well as Wesco Financial Corporation, a 54% owned subsidiary engaged in the savings and loan business. We expect Blue Chip Stamps to achieve satisfactory earnings in future years related to capital employed, although certainly at a much lower level than would have been achieved if the trading stamp business had been maintained at anything close to former levels. Your Chairman is on the Board of Directors of Blue Chip Stamps, as well as Wesco Financial Corporation, and is Chairman of t
*Your Chairman is on the Board of Directors of Blue Chip Stamps, as well as Wesco Financial Corporation, a 64% owned subsidiary, and is Chairman of the Board of See’s Candy Shops, Inc. We expect Blue Chip Stamps to be a source of continued substantial earning power for Berkshire Hathaway Inc. The annual report of Blue Chip Stamps, which will contain financial statements for the year ended March 1, 1975 audited by Price, Waterhouse and Company, will be available in May. Any shareholder of Berkshire Hathaway Inc. who *
Both Wesco Financial Corp., an 80% owned subsidiary of Blue Chip Stamps, managed by Louis Vincenti, and See’s Candies, a 99% owned subsidiary, managed by Chuck Huggins, made good progress in 1977. Since See’s was purchased by Blue Chip Stamps at the beginning of 1972, pre-tax operating earnings have grown from $4.2 million to $12.6 million with little additional capital investment. See’s achieved this record while operating in an industry experiencing practically no unit growth. Shareholders of Berkshire Hathawa
*Chip which, in addition to 100% ownership of several businesses, owns 80% of Wesco Financial Corporation. Thus, Berkshire’s equity in Wesco’s earnings is about 46%. In aggregate, businesses that we control have about 7,000 full-time employees and generate revenues of over $500 million. The table shows the overall earnings of each major operating category on a pre-tax basis (several of the businesses have low tax rates because of significant amounts of tax-exempt interest and dividend income), as well as the *
Investment Lessons
Wesco was Munger's laboratory for his own investment philosophy. While Buffett ran the main Berkshire show, Munger used Wesco as a vehicle for his own capital allocation decisions. His commentary at annual meetings — consistently more blunt and philosophical than Berkshire's — provided a window into the thinking that shaped Berkshire's investment philosophy from its earliest days.
Small satellite holding structures can be training grounds for capital allocation skills. Wesco's smaller scale allowed Munger to make capital allocation decisions that would have been too small for Berkshire but were meaningful at Wesco's scale. The experience of running a complete holding company — insurance, operating businesses, investment portfolio — gave Munger the hands-on capital allocation experience that complemented his theoretical framework.