Buffett calls Dexter Shoe his worst deal ever

NEW YORK Fri Feb 29, 2008 10:40pm EST

NEW YORK (Reuters) - Even Warren Buffett makes mistakes. Sometimes, it's as simple as shoes that don't quite fit.

In the course of spending 43 years building Berkshire Hathaway Inc (BRKa.N) (BRKb.N) into a melting pot of more than 70 companies and some $75 billion of equity investments, even the man widely considered America's greatest investor might reasonably be expected to make the odd mistake.

Analysts often point to Salomon Brothers, the financial services firm that Buffett helped bail out in the early 1990s after a Treasury bidding scandal, as one of his lesser investments.

But in his annual letter to Berkshire shareholders on Friday, Buffett identified at least one that was worse, from about the same period: Dexter Shoe Co.

In 1993, Berkshire paid $433 million for the Maine-based company. Rather than use cash, Buffett used Berkshire Class A stock to fund the purchase. That Berkshire stock is worth eight times more now, giving the Omaha, Nebraska-based insurance and investment company a $216 billion market value.

Dexter didn't make it that long. It ended shoe production in the United States and Puerto Rico in 2001, and Berkshire folded what was left into its H.H. Brown Shoe Group unit.

"What I had assessed as durable competitive advantage vanished within a few years," Buffett wrote on Friday. "By using Berkshire stock, I compounded this error hugely. That move made the cost to Berkshire shareholders not $400 million, but rather $3.5 billion. In essence, I gave away 1.6 percent of a wonderful business -- one now valued at $220 billion -- to buy a worthless business."

"To date, Dexter is the worst deal that I've made," Buffett went on. "But I'll make more mistakes in the future - you can bet on that. A line from Bobby Bare's country song explains what too often happens with acquisitions: 'I've never gone to bed with an ugly woman, but I've sure woke up with a few.'"

(Editing by Louise Heavens)

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