The Berkshire CEO doubled down on his stake in the Sheetrock maker in 2006. His gamble has cost him millions
In 2006, Warren Buffett spotted a bargain. Just a few months earlier, USG (USG, Financial) had emerged from five years in bankruptcy, and its stock had lost more than half its value, falling from more than $115 to less than $50. The chief executive of Berkshire Hathaway (BRKA) had enriched himself on USG before: He had picked up 15% of the wallboard maker in late 2000 at an average share price of $15. Hoping to score again, Buffett spent some $165 million for 3.5 million additional shares. But lightning didn't strike twice.
Today, USG shares fetch $34 apiece. With Sheetrock production and prices plummeting—homebuilding is in collapse, after all—the company lost $73 million in the past two quarters, and industry analysts expect the losing streak to continue into 2009. Revenue might bottom out at $4.6 billion next year, after declining three years in a row. And if the analysts are right, USG's shares will be worth no more than $40 a year from now. "Frankly," says William Foote, chairman and chief executive since 1996, "we've been caught in a perfect storm."
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In 2006, Warren Buffett spotted a bargain. Just a few months earlier, USG (USG, Financial) had emerged from five years in bankruptcy, and its stock had lost more than half its value, falling from more than $115 to less than $50. The chief executive of Berkshire Hathaway (BRKA) had enriched himself on USG before: He had picked up 15% of the wallboard maker in late 2000 at an average share price of $15. Hoping to score again, Buffett spent some $165 million for 3.5 million additional shares. But lightning didn't strike twice.
Today, USG shares fetch $34 apiece. With Sheetrock production and prices plummeting—homebuilding is in collapse, after all—the company lost $73 million in the past two quarters, and industry analysts expect the losing streak to continue into 2009. Revenue might bottom out at $4.6 billion next year, after declining three years in a row. And if the analysts are right, USG's shares will be worth no more than $40 a year from now. "Frankly," says William Foote, chairman and chief executive since 1996, "we've been caught in a perfect storm."
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