Dempster Mill: Buffett's Control Investment, Capital and Outcome

What Buffett saw

Dempster began as a cheap security: Buffett first bought near $18 in 1956, with book value around $72 per share and net current assets around $50. The business itself earned very little.

The cheap balance sheet was only the opening scene. After gaining control, Buffett installed Harry Bottle and the task became operational: reduce excess inventory, collect receivables, cut costs and stop tying capital up in an under-earning farm-equipment business.

How the situation was meant to work

The balance-sheet change shows the method. By mid-1963, inventory had fallen from about $4.2 million to $0.89 million, cash and marketable securities had risen from about $166,000 to $2.436 million, and liabilities had fallen sharply. The released cash could earn something even while the operating business was being prepared for sale.

After control and a management change, inventory and receivables were converted into cash and marketable securities. The operating assets were later sold around book value, leaving a substantially different asset mix.

The timeline, capital and risk

Capital disclosed: Control interest averaged about $28 per share and represented about 21% of BPL net assets at a $35 valuation in 1961.

Time frame: 1956-1963.

Control creates options but also creates execution risk. The quoted $28-to-$80 comparison does not capture purchases made over seven years, the costs of turning around the company or the fact that a sale at book value still had to be negotiated.

What happened

Outcome: Operating assets were sold around book value; combined realisation was about $80 per share.

What the return means - and the lasting lesson

Return record: About 185.7% simple gain from $28 to about $80; not a precise IRR.

A control case can create its own catalyst, but the historic price comparison is not a portfolio IRR. Purchases spanned years, and a large active-control phase began only in 1961.