When Warren Buffett Met Walt Disney
By 1966, Walt Disney Productions ($DIS) was firing on all cylinders. From the Mickey Mouse cartoons to animated features like Snow White and the Seven Dwarfs to Disneyland, Walt and crew had created a treasure trove of intellectual property and assets unrivaled in the industry. But, despite all that, the publicly-traded company was only valued at an $80 million market cap. Wall Street apparently felt that Disney’s days of growth were over.
You don’t need the benefit of hindsight to recognize that as an insane misjudgment. Disney had been Hollywood’s version of the goose that laid the golden eggs for the better part of four decades. Why would anyone think that was about to end?
Well, one up-and-coming investor from Omaha knew a good deal when he saw it. 35-year-old Warren Buffett recognized that Disney was selling for pennies on the dollar and prepared to make a sizable investment in Walt’s entertainment empire. Before pulling the trigger, though, Buffett traveled out to Burbank to meet with Walt Disney in person. This also afforded each man the chance to size up the other.
“He couldn’t have been a nicer guy,” Buffett said later.1 Walt took his would-be investor on a personal tour of the Disney Studio and laid out his plans for the future. One detail, in particular, caught Buffett’s eye: the much-anticipated Pirates of the Caribbean attraction, set to open at Disneyland the following year, was valued at $17 million. “Imagine my excitement,” he said, “a company selling at only five times rides!”
If this one small part of Disneyland — which was, itself, just one piece of the Disney organization as a whole — was worth $17 million, how could the entire company be valued at only $80 million? Doing some quick math in his head, Buffett calculated that $80 million probably only covered what Disneyland itself was worth. In other words, everything else (Mickey Mouse, Silly Symphonies, animated features, live-action films, etc.) would be thrown in for free. Yet another arrow to the chest of the Efficient Market Hypothesis.
Buffett described his $DIS purchase (and subsequent exit) in his 1995 letter to Berkshire Hathaway shareholders:
Duly impressed, Buffett Partnership Ltd. bought a significant amount of Disney stock at a split-adjusted price of 31 cents per share. That decision may appear brilliant, given that the stock now sells for $66. But your Chairman was up to the task of nullifying it: In 1967, I sold out at 48 cents per share.
In all, Buffett purchased about 5% of Walt Disney Productions for $4 million. Selling it a year later won’t go down in history as one of his savvier deals2, but the key takeaway is that such a deal was even possible in the first place. For no discernible reason, one of the world’s best companies went on sale. In plain sight. Available to anyone able to recognize the immense strength of the Disney brand.
Here was a company with a popular weekly television show — hosted by its charismatic founder — that expertly married entertainment and advertisement, hit movie after hit movie in theaters, a thriving merchandising business built on a growing cast of created characters, and a theme park already revolutionizing the American vacation experience. Life-changing returns awaited anyone with enough sense to ignore Mr. Market and, instead, bet on the blue-chip $DIS.
Walt probably liked the idea of having another plain-speaking Midwesterner become one of his company’s biggest investors.
Today, 5% of The Walt Disney Company is worth over $14 billion.