Subject: Re: Minority ownership of acquisitions
I think the key part of the Pilot deal that screwed us was that without operational control we were powerless to stop the cooking of the books. This pushed us into paying more for the remaining portion because we had agreed in advance on the metrics to be used for valuing the remaining portion. So besides tying % of economic ownership to % of operational control, another point would be to reserve the right to determine the value of the remaining unowned portion at the time it’s purchased.


This is a good point - agreeing to a deal involving metrics that can be gamed will only work out if the people in interim control are not the kind of people who would game the metrics. It is hard for me to fathom why Buffett would have wanted any association with the Haslams from whom he bought this company, given their track record of unsavoury conduct. But given that information (of which Buffett must surely have been aware), agreeing to a 3-stage deal like this one, with the second and third phases dependent on metrics under the control of the Haslams, was a good way of compounding the initial mistake of doing a deal at all.