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Published: Saturday, 10/9/2010

Buyout firms focus on exit, not entrance, Buffett says


SAN FRANCISCO — Billionaire investor Warren Buffett said he avoids acquiring companies from leveraged-buyout firms because they focus on “exit strategy.”

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

Mr. Buffett, 80, built Omaha-based Berkshire Hathaway Inc. 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,” Mr. Buffett said. “Everyone likes money,” he said. “We count on people loving the business.”

Mr. 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.

Mr. Buffett's remarks broadcast Friday at the conference were recorded within the last four to six weeks, according to Tina Chande, head of events for the corporate governance network. He was interviewed by Nell Minow, co-founder of the Portland, Maine-based Corporate Library, which researches governance issues.

Mr. Buffett urged shareholders to challenge directors when companies perform poorly.

“The best way to affect the behavior of board members is to embarrass them,” Mr. Buffett said. “If boards aren't performing their function, then a few major shareholders holding them accountable will help.”

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