On this day in economic and business history…
Warren Buffett‘s Berkshire Hathaway Inc. (NYSE:BRK.A) made what was then the largest acquisition in its history when it agreed to acquire General Re for $22 billion in a tax-free exchange of stock on June 19, 1998. The deal was unusual for Buffett: He has a known preference for all-cash transactions, and the acquisition was nearly five times larger than Berkshire’s previous record buyout of Geico, completed in 1995. As a result of the deal, General Re’s shareholders wound up with an 18% stake in Berkshire Hathaway Inc. (NYSE:BRK.A) — a sizable premium over the purchase price, given Berkshire’s roughly $200 billion market cap at the time.
The deal turned out to be pretty good for General Re’s shareholders. From the time the acquisition closed — it was accounted as a merger for tax purposes — to the 15th anniversary of the buyout offer, Berkshire Hathaway Inc. (NYSE:BRK.A)’s shares gained 173% — more than double the return of the Dow Jones Industrial Average (INDEXDJX:.DJI) over the same time frame.
However, General Re became a bit of a headache for Buffett in later years, as it soon became apparent that the reinsurer had been up to some risky business. Two years after the buyout, General Re’s subsidiary entered into two sham transactions with American International Group, Inc. (NYSE:AIG) that were designed to inflate AIG’s loss reserves by $500 million. Buffett, in discussing his experience with General Re post-buyout, quoted country-western musician Toby Keith in his 2002 shareholder letter: “I wish I didn’t know now what I didn’t know then.”
The scandal ousted longtime AIG CEO Maurice “Hank” Greenberg from his post in 2005 and led to the successful prosecution of four General Re executives and one AIG executive in 2008. These five convictions were overturned in 2011 — right around the time Berkshire Hathaway Inc. (NYSE:BRK.A) found itself embroiled in another financial scandal, this one over a top Buffett lieutenant’s alleged insider trading in the weeks before the company acquired Lubrizol.
The first comprehensive Communications Act in the United States was signed into law on June 19, 1934. It replaced the Federal Radio Commission with the Federal Communications Commission, which was charged with “regulating interstate and foreign commerce in communication by wire and radio.” This new description is broad enough to encompass television and the Internet, but as the Act was devised in an era when Americans used only telephones and radio, it was originally biased toward regulating these two forms of communication.
The FCC is the Communications Act’s most visible legacy. Its history has seen several high-profile actions of lasting consequence for the American telecommunications industry. An FCC report in 1940 forced the breakup of NBC, and ABC was formed out of the split. A 1948 TV station permit “freeze” damaged ABC’s growth prospects and ultimately destroyed the upstart DuMont television network, which had no choice but to pay AT&T Inc. (NYSE:T) for radio lines and TV cables. DuMont did not operate radio stations, so the charges were effectively discriminatory. After AT&T’s divestiture, the FCC (belatedly) moved to a new regulatory goal of equality for all long-distance providers using local lines.