Finance History | McLane, 23 May 2003 — Approximately US$1.5 Billion Bought a Nationwide Distributor

On 23 May 2003, Berkshire Hathaway acquired McLane Company from Walmart for approximately US$1.5 billion in 2003 dollars paid in cash. The purchase transferred a major wholesale distributor rather than a consumer-facing retail chain, adding an operation whose value depended on moving enormous volumes efficiently through warehouses and delivery routes. McLane distributed groceries and nonfood products to convenience stores, wholesale clubs, mass merchandisers, quick-service restaurants and movie theaters. Its broad customer base placed the company between manufacturers and thousands of outlets that needed frequent, accurate replenishment. Distribution margins are normally thin, so profitability depends on purchasing discipline, warehouse productivity, route density, inventory turnover and tight control of spoilage and errors. Small changes in cost per case can therefore have a large effect when multiplied across a nationwide flow of products. The approximately US$1.5 billion cash price in 2003 dollars avoided issuing Berkshire shares, but it required the acquired network's future earnings to justify a substantial immediate use of capital. The transaction also showed Walmart converting a distribution subsidiary into cash while Berkshire accepted the operational demands and customer-concentration risks of the business. McLane's results could be affected by fuel and labor costs, food-safety obligations, supplier terms, credit exposure and the loss or repricing of large customer contracts. Berkshire kept the company operationally separate, leaving detailed logistics decisions with managers who understood daily warehouse and route economics. That autonomy matched the decentralized Berkshire structure while making McLane's management directly accountable for the capital tied up in facilities, trucks and inventory. The photographed Marathon station on 2nd Street in Tifton is a delivery-network anchor rather than the acquisition venue, McLane headquarters or a claim that the station itself was purchased. The visible trailer represents the final link in the system Berkshire bought for approximately US$1.5 billion in 2003 dollars: getting the right products from distribution centers to customer shelves on schedule. Photo: Michael Rivera, CC BY-SA 4.0, via Wikimedia Commons.