Monday, March 16, 2015

Buffett Partnership Investment: Grinnell Corp.

The 1962 Buffett Partnership had a 3% position in Grinnell Corp. Grinnell Corp at the time was a big player in the fire sprinkler and alarm business. It owned 76% of ADT. Today both companies are part of Tyco.

1962 Grinnell Corp
Price $ 74.500
Market Cap $ 97.93 M
P/E TTM 11.7 x
Div yield 2.7 %
P/BV 0.86
ROE7.3 %
LT Debt/Equity0.00
Interestingly back in 1960s it was mired in lawsuits with the government. The anti-trust authorities accused the company and several subsidiaries of effectively forming a cartel. They collectively owned 87% of the central fire and alarm business. The court battle went all the way to the Supreme Court in 1964 where the company finally lost. By 1966 Grinnell had to divest ADT and two other subsidiaries. If I were Buffett, all this would not detract from the appeal of the company. In fact, all this tells me Grinnell was doing something right!

Below is the consolidated income statement and balance sheet from the 1963 Moody's Industrial Manual. The financials there do not include companies which are not wholly-owned subsidiaries. That would mean the financials exclude the full ADT financials. But what this in 1962 means to me is unclear. There are two ways to do this today. One is the equity method in which the income but not revenue shows up on the income statement. The other method is to exclude both income and revenue from the consolidated income statement, and instead just include the dividend paid to Grinnell as income. If it is the latter case then the income statement significantly under-reports income because Grinnell's share of income is $3.2M and its dividend is $1.1M, an understatement of $2.1M. If someone knows the answer please comment. In either case, the company group has great earning potential, and the balance sheet is also understated because it lists the value of all non-wholly owned subsidiaries at only $23M.

I understand the attraction of Grinnell in 1962.

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