June 1, 1999
Charles T. Munger: a Tycoon Who Loves Monopolies
By ROGER M. GRACE
I was interested to read last week that the Los Angeles Business Journal has identified Charles T. Munger as the eighth wealthiest man in Los Angeles, with assets totaling $1.6 billion.
— sidekick to super-investor Warren Buffett — is accumulating capital
at a brisk pace. Last fall, Fortune Magazine estimated the value of his wordly
goods at $1.2 billion. The Wall Street Journal, in an article in its Nov.
19, 1997 issue on Munger and his “odd investment,” the Daily Journal
Corporation, put Munger's wealth at $825 million. A Jan. 22, 1996 article
in Forbes set the value of his holdings at $610 million.
Charles T. Munger, partner of Wall Street monarch Warren Buffett, is in his own right a successful investor, with $1.6 billion. Munger is chair of the Daily Journal Corporation.
Since the time in early 1997 when the Metropolitan News Company added Munger as a defendant in its action against DJC for unfair business practices, Munger has accumulated more than $1 billion. And yet, the 75-year-old magnate seemingly has as his mission, if not obsession, the crushing of MNC — which, I regret to say, is considerably smaller than Munger's competing company.
Of course, to Munger, even DJC is a small time operation. At his deposition in our case, he said of the $65 million company: "It's such a small business...."
Indeed, at the 1998 meeting of the shareholders of Berkshire Hathaway, Vice Chair Munger, sharing a platform with Chairman Buffett, said of that company's purchase of $1 billion in silver that it was "not a big deal for Berkshire."
The Wall Street Journal has quoted him as referring to the San Francisco Recorder as a "gnat." He also said in deposition testimony that the Recorder, which competes with DJC's San Francisco Daily Journal, is a far more significant rival to DJC than we are.
It's just that Munger happens to want a monopoly on legal advertising in California, and we're kind of in his way.
Munger's partner, Buffett (second wealthiest hombre in the U.S., behind Microsoft's Bill Gates) is more vocal than Munger. His passion for monopolies came out in a federal case involving a Buffalo, New York newspaper that sued a competing newspaper owned by a Berkshire Hathaway subsidiary.
The trial court judge wrote:
“Mr. Buffett was described to the Wall Street Journal by an investment banker as follows: 'Warren likens owning a monopoly newspaper or dominant market newspaper to owning an unregulated toll bridge. You have relative freedom to increase rates when and as much as you want.' While he disputed the accuracy of the quotation, Mr. Buffett concedes that the remark correctly reflects his philosophy.”
Buffett later said in an interview:
“I probably said that owning a monopoly, a small monopoly newspaper, specially in a town like Fremont, Nebraska, [with] no television competition, is absolutely a great business. Whether it is like a toll bridge I don't remember, but it is a great business. It may be better than a toll bridge in Fremont.”
Buffett said in 1986:
“Newspapers are a marvelous business. It's one of the few businesses that tend toward a natural, limited monopoly. Obviously, it competes with other advertising forms, but not with anything exactly like itself. Show me another business like that — there isn't one.”
Those, of course, are Buffett's words, not Munger's. Yet, it does seem that what Buffett thinks, Munger thinks. Munger was quoted in a 1996 article in Forbes as saying:
“You know the cliche' that opposites attract? Well, opposites don't attract. Psychological experiments prove that's it's people who are alike that are attracted to each other. Our minds [his and Buffett's] work in very much the same way.”
That Buffalo case reflects the Buffett-Munger approach — an approach that has not changed.
In 1977, Munger and Buffett successfully negotiated for the purchase by Blue Chip Stamps (of which Munger was president) of the Buffalo Evening News. That newspaper, which did not have a Sunday edition, competed with the Buffalo Courier-Express, a newspaper at one time edited by Mark Twain.
The Buffalo News decided to start a Sunday edition — and to give it away at first to current subscribers and charge only 30 cents a copy for street sales. It engaged in other conduct which struck the Courier-Express as anticompetitive, and it sued.
A U.S. District judge on Nov. 9, 1977 issued injunctive relief. He said in his opinion:
"There are only two newspapers now. If the plan works as I find it is intended to work, there will be but one left."
Among the provisions of the injunction was a prohibition on bad-faith representations as to circulation of the Buffalo Evening News. By order of July 28, 1978, the Evening News was found in contempt for violating that aspect of the injunction.
The injunction remained in place for two years, but an appeals panel reversed, finding no evidence of actual injurious intent.
The Courier-Express folded on Sept. 19, 1982. The trial court's view of the case was vindicated; a monopoly had been attained.
On April 6, 1983, UPI reported that Blue Chip Stamps in its annual report told of a $1.2 million loss in 1982 by the Buffalo Evening News, but commented that “the economic prospects of the News are greatly improved” in light of the demise of its rival.
The philosophy appears to be that losing money is OK in the cause of squeezing profits out of newspaper operations in a two-newspaper market — because if the competitor has less sticking power, it will be put out of business and a monopoly will be attained.
Munger is willing to keep up a fight in which he is losing money for a prolonged period. The 1996 Wall Street Journal article on Munger reported that The San Francisco Daily Journal has drained DJC of $2 million a year for the past 10 years.
Munger can count among his triumphs DJC vanquishing a rival newspaper in Seattle. A suit was brought in 1996 by Jeff Barge, who had been publisher of the newspaper, and the action is pending in Santa Ana. Barge v. Daily Journal Corp., 96-5461.
The case stems from alleged trickery by DJC President Gerald Salzman, accused of feigning an interest in the purchase of a Seattle legal newspaper, Washington Law, and, after obtaining its trade secrets, launching a copycat competing newspaper. That newspaper, Washington Journal, according to the complaint, engaged in predatory pricing, causing Washington Law to fold.
to the complaint, Barge in 1992 negotiated with Salzman, providing him with
the newspaper's financial statements, list of subscribers, and documents
reflecting its marketing plans and other company secrets, which Salzman
pledged to keep confidential. What Barge didn't know, the pleading alleged,
was that under a loan agreement with its bank, DJC was precluded from buying
any papers at the time.
Gerald Salzman, president of the Daily Journal Corporation, is accused in an action in the U.S. District Court for the Central District of California of using unlawful means, on behalf of the Daily Journal Corporation, in killing off a rival Seattle newspaper.
Salzman allegedly continued to exact confidential information from Barge, while at the same time making plans to compete with him — the preparation including secretly holding discussions with two employees of the plaintiff about going to work for DJC.
In August of 1992, while negotiations were still in progress, Salzman made a "secret trip" to Seattle and signed a lease for office space, the pleading asserted. The Washington Journal, strongly resembling Washington Law, was launched on Sept. 1, 1992, the complaint set forth, adding that predatory subscription and advertising rates were established by the new publication. In October 1992, Barge discontinued operations of Washington Law.
Munger has admitted to me that Salzman looked at documents he shouldn't have.
A member of MNC's staff, Larry Widdis, testified at his deposition that when he was employed by DJC, DJC President Gerald Salzman exhorted him to work toward putting MNC out of business, just as Munger had killed off a rival newspaper in Buffalo.
DJC is minimizing its own profits from legal advertising (trustee sale notices in particular) in order to force us into competing at a barely profitable level. It is conducting certain operations, by its own admission, on a below-cost basis. As to the details of its scheme, well, come to Department 49 and hear all about it. Our lawyer, Thomas V. Girardi, will be pitted against Ronald Olson, name partner in the firm Munger founded, now known as Munger, Tolles & Olson.
The second trial is scheduled to start June 7. At the first trial last December, we came close; on a key issue, the jury's vote was 8-4 (in our favor).
Now that we've had a practice round....
Copyright 1999, Metropolitan News Company
did not prevail. MNC lost its suit. So did Barge.
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