Berkshire’s McLane Subsidiary Acquires Kahn Ventures

Published on March 23, 2010

Berkshire Hathaway’s McLane subsidiary has agreed to acquire Kahn Ventures, the parent company of Empire Distributors, Inc.  Empire Distributors is a wholesale distributor of distilled spirits, wine, and beer operating mainly in the Southeastern United States.  Empire Distributors was founded in 1940 by Max E. Kahn with two trucks, eight brands, and 149 customer accounts.  The company expanded in subsequent decades and is still run by members of the Kahn family.

McLane is engaged in the wholesale distribution of grocery and non-food items to retailers, convenience stores, and restaurants.  Berkshire purchased the business from Wal-Mart Stores in 2003 for approximately $1.5 billion.  McLane typically operates on very low margins (typically with pre-tax margins under one percent) but has high sales volumes with 2009 revenues exceeding $31 billion.  We provide more details on McLane along with other Berkshire Hathaway subsidiaries in The Rational Walk’s Berkshire Hathaway 2010 Briefing Book.

Berkshire has not disclosed the terms of the transaction or any details regarding revenues, earnings, or margins of Empire Distributors.  The business is likely to have a similar operating model to McLane and may operate on low margins.  Although Berkshire does not typically rely on “synergies” to justify the economics of an acquisition, the company made the following statement in the press release indicating that some efficiencies are anticipated as a result of Empire gaining access to “best practices” developed by McLane:

Empire will continue to be run in the same prudent and professional manner as it has been for the past 70 years, led by the current executive management team, and operating out of its existing state-of-the art facilities and in all the same markets. The only change to Empire’s business will be new access to enhanced resources, operational best practices and intellectual capital that will provide significant upside and opportunity for increased levels of success for Empire, its suppliers and the brands it distributes.

It is not practical for Berkshire to break out the recurring operating results for small subsidiaries in quarterly and annual reports.  However, providing more details at the time of an acquisition would increase transparency and allow shareholders to better understand the value received in relation to the purchase price.  This is particularly important if “synergies” are being relied upon to justify part of the purchase price.

Disclosure:  The author owns shares of Berkshire Hathaway and is the author of The Rational Walk’s Berkshire Hathaway 2010 Briefing Book which provides a detailed analysis of the company along with estimates of intrinsic value.

Berkshire’s McLane Subsidiary Acquires Kahn Ventures