Monthly Archives: December 2014

Dairy Queen Brings Its Sweet Business Model to Kuwait and UAE

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While food fads come and go, tried-and-true Dairy Queen continues to prosper and expand its global footprint.

Berkshire Hathaway’s wholly owned Dairy Queen System has announced a 20+ store franchise agreement with Durra Khaled For Foodstuffs Co., a subsidiary of KMGC, for a 5-year roll out of DQ Grill & Chill restaurants and DQ Treat stores in Kuwait.

A separate franchise deal for the United Arab Emirates was recently inked with U.S.-based International franchise company Bajco Group.

After a ten year absence, the agreements mark Dairy Queen’s return to the Kuwait and UAE markets at a time when its brand has a growing presence throughout the Middle East. Dairy Queen already has established stores in Bahrain, Brunei, Egypt, Oman, Qatar, and Saudi Arabia. The first Kuwait and UAE stores will open in 2015.

“As we prepare to celebrate the 75th anniversary of the DQ brand next year, we are building on our global brand equity as well as looking forward to developing future growth opportunities in the region,” said Brad Houser, Executive Vice President of International Development “We are thrilled to be re-entering the Kuwait market and partnering with Durra Khaled For Foodstuffs Co., a group that brings a wealth of business experience through its diverse portfolio.”

Continued International Expansion

Dairy Queen currently has 6,400 Dairy Queen stores in the United States, Canada and 26 other countries. The international business has been particularly robust, with some 1,394 locations, and over 600 stores in China alone. Its Middle East expansion have been particularly aggressive, with Saudi Arabia on track to open 32 locations by 2015 through franchisee Al Safwa Food Group. The largest DQ Grill & Chill restaurant in the world is in Riyadh, Saudi Arabia.

Dairy Queen doesn’t want to do its international expansion piece meal, and is looking for franchisees with the strength to take on whole countries.

For more information, read a Mazor’sEdge special report on Dairy Queen.

© 2014 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

See’s Candies Hints It’s Ready to Head East

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Acquired by Berkshire Hathaway in 1972 for only $25 million, See’s Candies today has over $400 million in annual revenues with just under a quarter of that as profit. That means it annually produces four times its acquisition cost in profit.

How can those profits continue to grow? The solution looks more and more to be to add stores in states where shoppers don’t currently have access to the joys of a See’s Candies chocolate lollipop. At least they can’t buy them year-round.

Currently there are more than 200 company-owned See’s Candies shops in the western half of the U.S., and limited distribution in department stores, along with a handful internationally in Hong Kong, Macau, Taipei, and Tokyo, and additional pop-up stores for the holidays all across the country. However, until recently, you couldn’t find a full-fledged store east of the Mississippi River. That began to change in 2013 with See’s opening stores in Ohio (in Cincinnati and Columbus) and two stores in Pittsburgh, Pennsylvania.

Now, the company is hinting that it is looking harder at the Eastern seaboard.

“We need to develop the markets and taste buds,” See’s Candies President and CEO Brad Kinstler said during a recent appearance at Stanford University’s Rock Center for Corporate Governance.

In 2013, Berkshire auctioned off an all-you-can-eat tour of the See’s Candy factory in California to benefit an education nonprofit. Who knows? Perhaps by 2016 that will be possible on the East Coast too. Have your sweet tooth at the ready.

© 2014 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Berkshire Hathaway Acquires Charter Brokerage

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Berkshire Hathaway has announced the acquisition of Charter Brokerage from New York-based private equity firm Arsenal Capital Partners.

Charter Brokerage describes its business as “a leading global trade services company providing complete customs, import, export, drawback and related services. Founded in 1994, our mission is to provide full-service and compliance-focused customs services to importers and exporters in the U.S. and Canada.”

In a statement issued by Berkshire Hathaway, Warren Buffett said, “Charter Brokerage is a high quality business with consistently strong financial performance that fits well within Berkshire Hathaway. We are delighted to partner with Bobby Waid, CEO, and its current management team.”

According to the company’s website, Charter Brokerage started as company serving the petroleum and airline industries, It now provides services to a large variety of industries, including chemicals, petrochemicals, biofuels, industrial machinery and equipment, metals and food products.

The company proclaims that “No firm matches our experience with the complex rules that govern the payment of drawback. We recover more duties, taxes and fees for our clients than any other firm.”

No financial details of the acquisition cost were released, but Fortune reported that Charter Brokerage had a valuation in the range of $500 million.

© 2014 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Warren Buffett Shows How to Make 354,000% on Your Money

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Making 100% on your money in a year is something that any investor would be proud of. Any investor that’s not Warren Buffett, that is. However, that pales before the return Berkshire Hathaway is set to make on Friday.

Berkshire Hathaway is poised to make nearly 354,000% on its money on Friday, December 12, 2014, when it exercises its right to purchase 8,438,225 common shares of Restaurant Brands International Inc. (QSR-WI) for a penny a share. The warrants came attached to 68,530,939 Class A 9.00% Cumulative Compounding Perpetual Preferred Shares.

As of December 12, 2014, Restaurant Brands’ shares were trading at $35.41 a share.

The paper profits come as a result of Berkshire Hathaway’s role in financing Burger King’s acquisition of Canadian restaurant chain Tim Hortons, and give Berkshire ownership and control over 4.18% of the outstanding Common Shares and 14.37% of the total number of votes attached to all outstanding voting shares of the Corporation.

Berkshire provided $3 billion in financing, which entitled the conglomerate to preferred stock paying 9% interest, and the right to buy up to 1.75% of the combined company for a penny a share.

After receiving shareholder approval on Tuesday, December, 9, 2014, the deal will close on Friday, December, 12, 2014. Berkshire has already announced its intention to exercise its warrants that will have a value of roughly $275 million.

The combined Burger King and Tim Hortons will have 18,000 restaurants in 100 countries. The total valuation will be $18 billion.

Berkshire is not expected to sell its new stake in Burger King. The shares will join a $100 billion portfolio of leading companies that includes Coca Cola, American Express, IBM, and Wells Fargo among others.

(This article was amended based on the closing price on December 12, 2014.)

© 2014 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Lubrizol Continues Acquisitions Spree with Purchase of Two Weatherfield Units

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Berkshire Hathaway’s specialty chemical company Lubrizol has inked an agreement to purchase the oilfield chemicals business from Weatherford International PLC.

The acquisition is valued somewhere in the realm $750-$825 million.

The deal is the biggest “bolt-on” acquisition Lubrizol has made since it was acquired by Berkshire in 2011 for $9 billion, and comes only a week after it signed a deal to buy detergent compounds producer Warwick Chemicals, which is headquartered in Mostyn, North Wales.

Continued Expansion

Lubrizol has been on an acquisition spree of late. Only four months ago the company moved into the medical device market by acquiring Vesta Inc., a maker of catheters and tubing based on silicone and thermoplastics based in ranklin, Wisconsin.

Lubrizol’s revenues for 2013 were $6.4 billion, and the addition of the Weatherford units gives it an expanded footprint in the booming oil services business.

Under the terms of the deal, Lubrizol will acquire Engineered Chemistry and its drilling fluids business, known as Integrity Industries.

According to Lubrizol, the addition of these two businesses provide Lubrizol with a more significant footprint in the $20 billion oilfield chemicals business and more importantly, extensive applications experience and end-user relationships.

Engineered Chemistry supplies additives and fluids for a range of oilfield activities, including cementing, drilling, flow assurance and fracturing. It offers chemistry expertise to solve problems throughout the oil and gas drilling process. The business consists of a core manufacturing and research organization which supports a global field distribution network. Engineered Chemistry was built through a series of acquisitions over the past 12 years and is headquartered in Houston, TX. It operates 10 sites located predominantly in North America.

Integrity Industries manufactures drilling fluid systems, including diesel, mineral oil and synthetic oil based fluids. The company supplies these drilling fluid systems to retail drilling fluid companies along with technical support. The business has occupied the same niche for more than 25 years and is recognized as an expert in oil based drilling systems and chemicals serving customers across a large North American footprint. Headquartered in Kingsville, TX, Integrity Industries operates approximately 14 locations.

“This proposed acquisition provides us a new growth platform as we build out a multi-billion business in specialty chemicals and drilling fluids for the oilfield space,” said James L. Hambrick, Lubrizol chairman, president and chief executive officer. “With the addition of the companies’ technologies, combined with improved fluid formulation and applications knowledge, Lubrizol will be better positioned to innovate more quickly and become a solutions provider for both multinational oilfield service companies as well as more regional customers which have a significant share of the North American market.”

The new units will be run under the moniker of Lubrizol Oilfield Solutions.

Increasing Global Manufacturing Capability

In addition to acquisitions, Lubrizol has also been expanding its global manufacturing capability, opening an additives manufacturing facility in Zhuhai, Guangdong, China, in 2013, and breaking ground on a $50 million chlorinated polyvinyl chloride (CPVC) compounding plant in Dahej, India, in April 2014.

Based in Wickliffe, Ohio, Lubrizol owns and operates manufacturing facilities in 17 countries, as well as sales and technical offices around the world. Founded in 1928, Lubrizol has approximately 7,500 employees worldwide. It sells its specialty chemical products in over 100 countries.

© 2014 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.