I remember we owned stock in Schenley back in 1960 or so when it was selling below working capital.
I went to talk to their treasurer. At that time, their stock was selling at $20 and they had $33 of working capital, including a huge inventory. I was asking how good their inventory was. In the course of our conversation, he said, “We’ve spent $100 per share on advertising.”
That advertising was on the books for nothing. And that’s also true for Kraft. You have Philadelphia Cream Cheese and Miracle Whip. You couldn’t replace those for almost any price. They’ve got a niche.
If somebody said, “Gee, I want to be in the businesses that Kraft is in now,” it’d be a very difficult thing to do.
So even if book is only $20 and Philip Morris paid $106 a share for it, their book value and assets are only part of it. The rest is in the goodwill, the name – the franchise, if you will, as Warren Buffett would describe it.
Walter Schloss, 1989