Warren Buffett was invited to buy a stake in Dunkin' Donuts — but declined to get caught up in a takeover fight

• Warren Buffett declined to buy a stake in Dunkin' Donuts in 1989.
• The donut-shop chain approached the investor to help it escape a hostile takeover.
• The Berkshire Hathaway CEO said he avoids takeover fights and the $35 million deal was too small.

Warren Buffett was once invited to buy a chunk of Dunkin' Donuts, but declined to take a bite of the donut-shop chain.

The famed investor's sweet tooth, coupled with his love of strong brands and popular products, has led to his Berkshire Hathaway conglomerate owning See's Candies, Dairy Queen, and about $24 billion of Coca-Cola stock today. Dunkin' Donuts would seem to be a natural fit for the investor, but he passed on the company for a couple of key reasons.

The donut seller approached Buffett in 1989 in a bid to thwart a hostile takeover by Knightsbridge Capital, a Canadian investment-banking firm. Dunkin's board members wanted to secure the support of a long-term investor who would vote alongside them, and to raise cash for stock buybacks, making it harder for Knightsbridge to seize control of the company.

"We all agreed he'd be perfect," former CEO Robert Rosenberg wrote about Buffett in "Around the Corner to Around the World: A Dozen Lessons I Learned Running Dunkin' Donuts." The story was highlighted by Alex Morris, an investment researcher, on Twitter this week.

Rosenberg knew Buffett liked retail franchises with strong brands that acted as "moats" against competition, and believed Dunkin' fit those criteria. He recalled sending the offer, which was to buy $35 million of convertible preferred stock, to the summer home of business tycoon Martha Stewart, who Buffett was visiting at the time.

However, the investor quickly turned down the invitation. "I don't buy in the middle of a takeover fight and, further, the deal isn't sizeable enough for me," he explained.

"We were very disappointed, but luckily that didn't last long," Rosenberg wrote, noting that General Electric Credit accepted the deal a few days after Buffett rejected it.

It's no surprise that Buffett declined to invest in Dunkin'. He's avoided bidding wars over companies throughout his career, asserting that they typically drive up prices and foster ill will. Moreover, a $35 million deal would have barely moved the needle at Berkshire, which generated close to $400 million in operating income in 1989.

Dunkin' managed to evade Knightsbridge's grasp, but it was acquired by Baskin-Robbins owner Allied Lyons in 1990. The chain's subsequent owners included Pernod Ricard, followed by a private-equity group that counted Bain Capital and Carlyle Group among its members. It was last sold to Inspire Brands for more than $11 billion in 2020.