Growing company in distressedIn 1964, the “salad oil scandal,” where a vegetable oil company obtained massive loans through falsified collateral, rocked American Express, which had provided warehouses and vouched for the company’s inventory. This event ended up costing the company approximately $58 million and much of its reputation. In the period after the scandal broke, investors couldn’t sell AXP shares fast enough, and the stock lost 50 percent of its value in a short time, falling to $35 per share. Buffett, however, saw this moment of panic for just what it was – a drawback for an otherwise very stable company with long-term growth potential. Buffett observed people beginning to use credit cards in their daily transactions, and recognized AXP’s potential to become an American blue chip. The Berkshire Hathaway CEO purchased shares with a cost basis of $1.28 billion. As of December 31, 2009, the company’s 151.6 billion shares are worth more than $5 billion, an unrealized gain of $3.7 billion and an increase of 290 percent. Berkshire Hathaway currently owns 12.7 percent of American Express.
Adding to positionIn his 1997 shareholder's letter, Warren buffet shared that he was thinking of selling American Express. "Our Percs were due to convert into common stock in August 1994, and in the month before I was mulling whether to sell upon conversion. On ereason to hold was Amex's outstanding CEO, Harvey Colub, who seemed likely to maximize whatever potential the company had. But the size of that potential was in question: Amex faced relentless competiion from a multitude of card issers, led by Visa. Weighing the arguments, I leaned towards sale.
Friends in the right circle"Here's where I got lucky. During that month of decision, I played golf at Prouts Neck, Maine with Frank Olson, CEO of Hertz. Frank is a brilliant manager, with intimate knowledge of the card business. So from the first tee on I was quizzing him about the industry. By the time we reached the second green, Frank had convinced me that Amex's corporate card was a terrific franchise, and I had decided not to sell. On the back nine I turned buyer, and in a fwe months Berkshire owned 10% of the company."
Adding to positionIn his 1997 shareholder's letter, Warren buffet shared that he was thinking of selling American Express. "Our Percs were due to convert into common stock in August 1994, and in the month before I was mulling whether to sell upon conversion. On ereason to hold was Amex's outstanding CEO, Harvey Colub, who seemed likely to maximize whatever potential the company had. But the size of that potential was in question: Amex faced relentless competiion from a multitude of card issers, led by Visa. Weighing the arguments, I leaned towards sale.
Friends in the right circle"Here's where I got lucky. During that month of decision, I played golf at Prouts Neck, Maine with Frank Olson, CEO of Hertz. Frank is a brilliant manager, with intimate knowledge of the card business. So from the first tee on I was quizzing him about the industry. By the time we reached the second green, Frank had convinced me that Amex's corporate card was a terrific franchise, and I had decided not to sell. On the back nine I turned buyer, and in a fwe months Berkshire owned 10% of the company."
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