Buffett's $2.63 Million Lunch Auction Shows Enhanced Reputation

Warren Buffett’s annual charity- lunch auction reached a record $2.63 million after a year in which the billionaire defied an economic slump by completing his biggest takeover and boosting Berkshire Hathaway Inc.’s profit.

Bidding outpaced last year’s during the first days of the weeklong event and ended in a frenzy June 11 with 77 offers, according to EBay Inc., which ran the online sale. Proceeds go to the San Francisco-based Glide Foundation, a favorite charity of Buffett’s first wife, Susan, who died in 2004. The winner asked to remain anonymous, the organization said.

As a global credit crisis accelerated in 2008, firms seeking capital appealed to Buffett, 79, for support, and Barack Obama enlisted his economic expertise during the presidential- election campaign. Omaha, Nebraska-based Berkshire prospered without a U.S. bailout, providing Buffett with funds for a $27 billion buyout of railroad Burlington Northern Santa Fe in February.

“Warren Buffett’s reputation, if anything, has been enhanced over the last couple of years” as Berkshire was sustained by the $44 billion cash cushion that he built through the end of 2007, said David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business. “For those who can afford it, this lunch can have great value.”

New York Steakhouse

Buffett, the world’s third-richest person, rose to prominence through five decades of investing success. Like in previous years, he will meet the winner and as many as seven guests for lunch at Smith & Wollensky, the steakhouse on New York’s Third Avenue with the commercial tagline “Nice to see you again.”

Berkshire’s investments in firms that were blamed for contributing to the housing slump have increased pressure on Buffett to publicly discuss the financial crisis, assign blame and recommend remedies.

At his company’s annual meeting in May, shareholders pressed Buffett about his investment in Goldman Sachs Group Inc., which was sued by regulators in April for misleading investors. Buffett on June 2 defended credit-ratings firm Moody’s Corp., another Berkshire holding, at a hearing by the Financial Crisis Inquiry Commission.

Moody’s management shouldn’t be singled out for failing to anticipate the nationwide decline in housing prices, Buffett said. John Taylor, chief executive officer of the National Community Reinvestment Coalition, said after Buffett’s testimony that ratings firms deserve blame for assigning top grades to securities created by Wall Street that plunged in value.

‘Stinking Garbage’

Investment banks “walked into the room with a bagful of stinking garbage and the rating agencies not only embraced it but put their best sale of approval on it,” Taylor said.

Diners at the charity lunch may leave the table with investment ideas, business contacts and career advice, said Kass, who accompanied 48 students to Omaha for a lunch with Buffett five years ago. After that meal, Buffett picked up the tab, Kass said.

The auction’s previous record was set in 2008, when hedge fund manager Zhao Danyang of Hong Kong won it for $2.11 million. A group led by Courtenay Wolfe of Salida Capital paid $1.68 million last year. Greenlight Capital Inc.’s David Einhorn prevailed in 2003 with a $250,100 bid. Including this year, Buffett has raised more than $8 million with the auctions to help Glide, which serves meals to the needy.

“It’s actually a remarkable calibration of his value,” said Jeff Matthews, author of “Pilgrimage to Warren Buffett’s Omaha” and founder of hedge fund Ram Partners LP. “It measures what people think his worth to them is.”

Profits Amid Crisis

Berkshire’s earnings increased 61 percent to $8.06 billion in 2009, helped by Buffett’s investments during the crisis. The company got a coupon of 12 percent on an investment of 3 billion Swiss francs ($2.6 billion) in Swiss Reinsurance Co. and of 10 percent on a $3 billion allocation to General Electric Co.

The $5 billion that Buffett injected in Goldman Sachs 2008 yields $500 million a year for Berkshire, and the warrants he negotiated as part of the deal show a paper profit of more than $897 million. Weeks before he invested in the New York-based bank, he rebuffed a request for funds from American International Group Inc., which then needed a U.S. rescue.

Buffett’s fortune was estimated at $47 billion by Forbes magazine in March, placing him behind telecommunications investor Carlos Slim and Microsoft Corp. co-founder Bill Gates in the worldwide rankings. Buffett’s stock picks and takeovers turned Berkshire from a failing textile mill to a $184 billion seller of bricks, power and hurricane insurance.

Annual Meeting

His views on markets are followed by investors around the world, and tens of thousands of people gather in Omaha each year at Berkshire’s annual meeting to hear Buffett expound on the economy and public policy. He advised Obama during his successful 2008 campaign, and the president seized upon Buffett’s characterization of derivatives as “weapons of mass destruction” to rally support for reform.

In 2006, Buffett pledged 85 percent of his Berkshire holdings, a commitment valued at about $37 billion at the time, to the Bill & Melinda Gates Foundation and charities of four of his family members. The Gates donation is being made in annual installments, and will continue after Buffett’s death. The charity, established by Gates and his wife, combats disease and global poverty, and funds U.S. education initiatives.

Glide Lunch With Warren Buffett Results:

Year  Winner                                        Winning Bid
2000  Anonymous                                         $25,000
2001  Anonymous                                         $18,000
2002  Anonymous                                         $25,000
2003  David Einhorn, Greenlight Capital                $250,100
2004  Jason Choo, Singapore                            $202,100
2005  Anonymous                                        $351,100
2006  Yongping Duan, California                        $620,100
2007  Mohnish Pabrai, Guy Spier, Harina Kapoor         $650,100
2008  Zhao Danyang, China                            $2,110,100
2009  Salida Capital, Canada                         $1,680,300
2010  Anonymous                                      $2,626,311

To contact the reporter on this story:
Andrew Frye in New York at 
afrye@bloomberg.net


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