OID: But again, you're not buying it currently.
    Nygren: Right. I do own it, but I'm not buying more. I'd like a clearer view that the asbestos problem won't become, as you say, "a Survivor series" in reverse. I think that's unlikely, but I can't dismiss it as impossible.

OID: Does Marty Whitman say how he can live with it - because he's told us in the past that he doesn't want to go anywhere near tobacco for that reason?
    Nygren: In his last quarterly report, Marty talked about USG as being the first asbestos-related company that he's ever had the confidence to buy. But that was before the events of the last few weeks. And the stock's gone down from the mid-$20s to the mid-teens.

    [Editor's note: For Whitman's most recent perspective on USG, see page 61.]

OID: As a result of the bankruptcy of Owens Corning.
    Nygren: The fear of the overall asbestos issue has risen because of Owens Corning. But as I mentioned before, just as important is the fear of the shrinking pool of survivors. And there, when we look at the other usual suspects who get sued in these lawsuits, there are a lot of names you haven't read about in the context of asbestos litigation in years. They include Pfizer, General Electric, 3M and General Motors. So there are some mighty strong companies left. It's not just the smaller building products companies.

    [Editor's note: After our initial conversations, Berkshire Hathaway reported purchasing a stake of nearly 15% in USG. When we asked Nygren for his reaction, here's what he had to say:

OID: Any reaction to Berkshire Hathaway's disclosure that it had purchased nearly 15% of USG's common?
    Nygren: Sure. We were very pleased to see that. And we're excited to have Buffett as a co-shareholder in any company we're invested in, but especially in this one where asbestos liability is probably the key issue as to whether or not the stock is a buy. I think his ownership of insurance companies that have written asbestos policies gives him even more of an edge than he normally has. And therefore we're more heartened by his purchase of USG than we have been by his purchase of other names we own.

OID: Yeah. We've had to learn to live with him piggybacking on our ideas, too. But has his purchase made you any more sanguine about its prospects - or at least less concerned about the potential legal risk?
    Nygren: Let me answer you this way. I told you that there were three things that happened at USG that had been unanticipated at the beginning of the year: First was how rapidly the price of wallboard fell relative to the small decline in construction. And that's still a major concern of mine. Second was the increase in energy prices, especially natural gas. And oil prices have come back down a little, but natural gas prices haven't retreated much. So that's still a concern, too.
    And the third concern was the asbestos litigation. Warren's position helps lessen my concern there, but it doesn't really change my concern on the other two issues. So it's a positive. But the other question marks remain.]

The preceeding was excerpted from our 30-page feature with: Oakmark Fund's Bill Nygren & Henry Berghoef

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