In 1989, Andrew Sigler, the CEO of Champion International ("Champion"), approached Warren Buffett to invest in the company. Sigler was hoping that by having Berkshire take a significant ownership stake in Champion, it would serve the purpose of warding takeover attempts against the company.
Champion was in the forestry business and among other assets, they owned paper mills and valuable timber holdings. Warren recognized that he wasn't confident about the future economics of the forestry business, so if a deal would be made, it wouldn't be for Champion's common stock. Warren also noticed that Champion was sitting on timber holdings which were on the balance sheet at $1.5 billion but based on transactions of similar assets, those timber holdings could be worth up to $2.5billion. If Champion sold some of its timber holdings, the value of those holdings would become recognized in the marketplace and the common shares should benefit as a result.
In Dec 1989, Berkshire Hathaway bought 300,000 shares of Champion's convertible preferred stock which represented an 8% stake in the company. From 1989 to 1993, Champion's progress was lackluster. Particularly in the 90's, there was weak demand for paper products and the industry was plagued with overcapacity.
Berkshire bought Champions convertible preferred stock with the hope of being able to convert the investment into common shares at a favorable price. Investing in Champions convertible preferred shares provided the downside protection that Berkshire needed (as it turned out), while still offering some hope of upside possibilities.