Buffett and IKEA: A match made in heaven?

Warren Buffett’s patience is legendary. In the past, he has waited sometimes as long as a decade to invest or buy a company he likes. He never overpays for an asset.

With the leveraged buyout boom and M&A activity soaring over the past few years, he retreated to the sidelines- buying only small companies with his ever building stash of cash.

And what a stash it is. As of the end of June, Berkshire Hathaway had $47 billion to go shopping with.

Last spring, Buffett had said that he was looking for the large acquisition- somewhere in the $40 to $60 billion range- or, conversely, a few acquisitions in the $20 billion area.

What companies would he be interested in? From the Chicago Tribune:

His investment criteria include companies with “good returns on equity,” little or no debt, and consistent earnings, Buffett said in his latest annual report.

The Tribune discusses the possibility of a retailer like Kohl’s which is based in Minnesota but expanding nationwide. Kohl’s is interesting, but in my opinion, doesn’t seem cheap enough for Buffett. Also, it has no overseas exposure, which Buffett likes right now.

But a more intriguing option is the Swedish-based retailer IKEA. From the Tribune:

Ikea is among the closely held companies that might interest Buffett, said Monish Pabrai, managing partner at Pabrai Investment Funds in Irvine, Calif. Ikea has “a very powerful brand and business model that would be hard to duplicate,” Pabrai said. “I would think that’s almost a perfect fit for Berkshire.”

IKEA is still being run by its founder, Ingvar Kamprad, who is now 81. He is, depending on the year, among the world’s richest people. In 2006, his fortune put him at #3 on the list with $28 billion, but no one really knows for sure.

He is, though, very actively involved in the company. And he is very frugal. From a rare interview he gave in 2006 from Reuters:

“People say I am cheap and I don’t mind if they do. But I am very proud to follow the rules of our company,” Kamprad told French-language Swiss Broadcasting Corporation.

Asked to confirm he drove an old Volvo, he said: “She is nearly new, just 15 years old, or something like that.”

Sound familiar?

Buffett has famously driven his cars into the ground- sometimes keeping them for over a decade. According to Forbes, he recently turned in his 6 year old Lincoln and bought a 2006 Cadillac DTS. Presumably, as it was last year’s model, he got a “deal” on it.

I’m thinking these two billionaires could have a lot to talk about if they sat down at the same table.

The IKEA idea is very intriguing.

IKEA has stores in over 30 countries which fits in with Buffett’s current global interests. It is expanding heavily into China. With three stores already, including the second largest store in the world in Beijing, according to the WSJ they are adding two stores a year until 2010.

Berkshire Hathaway also owns a share of YUM, the parent of KFC, the largest fast food franchise in China.

Berkshire has a habit of buying outstanding private companies that are well-run by their original founders, such as Pampered Chef. Buffett buys the company, keeps the CEO and doesn’t care what else they do as long as they make him money. He is known to be extremely hands off.

What could be better for IKEA?

I don’t know their succession plan or how Kamprad is going to divy up the company to his three sons. But it gets more difficult to stay private the bigger you grow.

Stay tuned. Buffett will make a move with his $47 billion when everyone else is in financial distress. I don’t think that time has come, just yet. But the conditions are definitely more conducive to a deal today, than they were last May when he said he was looking for opportunities.

IKEA and Berkshire Hathaway.

I’m in heaven at the thought.