Oliver Chace
Co-founder 1839Background
Oliver Chace was a Rhode Island-born industrialist and protégé of Samuel Slater, often called the 'Father of the American Industrial Revolution.' Chace established the Valley Falls Company in 1839 in Valley Falls, Rhode Island, as a cotton textile manufacturer. He came from a family with deep ties to New England's early industrial expansion and understood the commercial potential of mechanized textile production at a time when American manufacturing was rapidly expanding. Chace's mill became one of the foundational operations that would, through a century of mergers and consolidations, eventually become Berkshire Hathaway.
Role at Berkshire Hathaway Inc.
Berkshire Hathaway is famous not for the men who originally founded it, but for the man who conquered and reinvented it. The original company, the Valley Falls Company, was a textile manufacturer established by Oliver Chace in Rhode Island in 1839. Through a series of mergers over the next century, it combined with the Berkshire Fine Spinning Associates and the Hathaway Manufacturing Company, eventually becoming Berkshire Hathaway in 1955. By the early 1960s it was a failing textile mill in New Bedford, Massachusetts, operating in an industry being decimated by cheap foreign competition. Enter Warren Buffett. In 1962, Buffett, then a young, successful investment manager running a partnership in Omaha, noticed a pattern in Berkshire's stock price. Whenever the company closed a mill and sold off equipment, management would use the proceeds to buy back shares, causing a brief bump in the stock price. Buffett began buying shares to profit from this spread. In 1964, Berkshire's management made a verbal offer to buy out Buffett's stake for $11.50 per share, but subsequently sent a written tender offer for only $11.375. Incensed by being shortchanged by 12.5 cents, a furious Buffett refused to sell. Instead, he bought more stock, took a controlling interest, and fired the management team. Buffett would later famously call this emotional acquisition the 'dumbest stock I ever bought,' calculating that tying up his capital in a dying textile business cost him hundreds of billions of dollars in compounded returns over his lifetime. However, he salvaged the mistake. Realizing the textile mills would never generate adequate returns, he began using the meager cash flows they produced to buy insurance companies. He used the insurance premiums ('float') to buy a bank in Illinois, then a newspaper, then a candy company (See's Candies). By 1985, he had permanently closed the last of the textile operations, but kept the name. Today, the name Berkshire Hathaway represents not a textile mill, but the ultimate expression of Warren Buffett and Charlie Munger's philosophy of value investing and decentralized corporate management. Oliver Chace was born in 1769.