In simple terms: A publicly announced Union Oil sale and liquidation created a known payout, subject mainly to a delayed tax ruling. Texas National Petroleum is included in the Buffett Partnership special-situations record with an evidence grade of A - named and directly described in the letters.
What Buffett saw
Buffett waited for the announced Union Oil transaction rather than act on sale rumours. He then examined three securities - bonds, common shares and warrants - against the same eventual liquidation, with different payoffs and timelines.
The appeal becomes clearer when the pieces are separated. The 6.5% bonds could be called at 104.25, the proxy suggested liquidation proceeds of about $7.42 per common share, and the $3.50 warrants gave exposure to the same eventual payout. Buffett was not making one vague oil bet; he was comparing several contractual claims on one corporate event.
How the situation was meant to work
The bond position was the cleanest: buy below the call value, collect the coupon and wait for the call. The common shares and warrants offered a different version of the same trade: buy below expected liquidation value, then turn the spread into cash as the sale and distributions were completed.
The tax ruling expected in August or September arrived late in September, and closing followed on 31 October. That delay is why the source treats the return as an annualised outcome rather than merely a headline spread.
The timeline, capital and risk
Capital disclosed: $264,000 face amount of bonds; 64,035 shares; 83,200 warrants. Capital employed grew from about $146,000 to $731,000.
Time frame: April 1962 to April 1963; bonds were held for under five months.
The main danger was not a falling stock market. Buffett thought antitrust and shareholder-approval risk were limited; the key open item was an Internal Revenue Service ruling. Until that ruling arrived, the date of the cash payout remained uncertain.
What happened
Outcome: Union Oil closed on 31 October 1962 and staged liquidation distributions followed.
What the return means - and the lasting lesson
Return record: About 20% annualised on bonds and about 22% annualised on stock/warrants, as Buffett reported.
This is the cleanest Partnership example of event underwriting: state what holders receive, identify the condition that can delay or break the deal, then measure the return against the actual clock.
This guide is educational information, not a recommendation, investment advice or a substitute for reading the underlying disclosure.