Warren Buffett’s 1993 acquisition of Dexter Shoe, funded with Berkshire Hathaway stock, resulted in a $20.51 billion loss of value. This historic mistake serves as a lesson for investors on the dangers of using high-growth equity for acquisitions and the reality that competitive advantages can vanish quickly.
Warren Buffett’s 1993 acquisition of Dexter Shoe remains one of the most cited examples of a bad capital allocation decision in investment history. Although the purchase price was $433 million, the true cost of the deal went far beyond the initial payment. Because the deal was funded through the issuance of Berkshire Hathaway shares rather than cash, the long-term impact on shareholder value became a massive, compounding loss.
The Hidden Cost of Paying with Stock
Instead of using cash, Berkshire Hathaway issued 25,203 Class A shares to acquire the company. At the time, this may have seemed like an efficient way to expand the business. However, as Berkshire Hathaway grew into a massive conglomerate over the following decades, the value of those shares soared. By October 2026, the value of the shares used to pay for Dexter Shoe had reached approximately $20.51 billion. This difference between the original $433 million purchase price and the current value highlights the hidden, opportunity cost of using stock to pay for acquisitions that do not deliver long-term growth.
When Competitive Advantages Vanish
The fundamental business failure behind the deal was a misjudgment of the competitive landscape. Dexter Shoe relied on high-cost manufacturing facilities located in the United States. During the 1990s, global trade barriers began to drop, and low-cost imports from other regions entered the US market. The footwear industry transformed rapidly, and Dexter Shoe lost its ability to maintain profit margins against cheaper competition. The company’s supposed business advantage was not durable enough to withstand this global shift, and the value of the subsidiary eventually dropped to zero.
Lessons for Investors
For shareholders, this story serves as a vital reminder to analyze how companies fund their expansion. When a company uses its own stock to buy another firm, it is essentially trading a piece of its future value. If the company being acquired fails to succeed, the shareholders are left with the massive cost of that dilution. Investors should watch whether a company is using cash or equity for acquisitions, as paying with equity can be much more expensive if the underlying business performs poorly. It remains a classic example showing that even the most successful investors can misjudge the permanence of a business advantage.