Summary: Berkshire Hathaway will acquire Precision Castparts for $37.2 billion.
According to USA Today, Warren Buffett’s company, Berkshire Hathaway, has agreed to acquire Precision Castparts, an aerospace supplier, for $37.2 billion, including the assumption of debt. Berkshire will pay $235 per share in cash for Precision Castparts’ shares. The deal was confirmed just this morning, according to Forbes.
The deal is the largest to date for Buffett. Buffett has always encouraged buying low, only acquiring things you understand, and investing for the long haul. Buffett, a Nebraska native, has been nicknamed the “Oracle of Omaha.”
Last year, Buffett told Bank of America to “do the best you can.”
Buffett said, “I’ve admired PCC’s operation for a long time. For good reasons, it is the supplier of choice for the world’s aerospace industry, one of the largest sources of American exports.”
The deal should close in the first quarter of 2016. A majority of Precision Castparts shareholders will have to approve the deal.
Buffett added, “This is right up there at the top,” noting the deal was an expensive one. “This is a very high multiple for us to pay,” he commented.
However, Jim Shanahan, an Edwards Jones who follows Berkshire, said that Buffett did not overpay. He explained, “The stock’s been down. It’s been hit pretty hard recently. So from that standpoint it makes sense. This is a really good company with a very strong management team.”
Precision Castparts will keep its headquarters and brand. It has roughly 29,350 employees and 157 manufacturing facilities. Around 72% of its business comes from aerospace business. Another 15% comes form the energy industry, and 13% comes from general industrial customers and other areas.
Precision Castparts reported $10 billion in revenue in fiscal year 2015. $1.5 billion in net income from continuing operations was also reported. According to Financial Times, Berkshire already controlled a 3 percent stake in the company.
The company makes castings, aerostructures, forged components, and fasteners for the aerospace market. It also produces fittings and pipes for the power business and other parts.
In May of 2014, Warren Buffett said he would be glad to partner with 3G Capital again.
The weakened energy market hit the company’s stock in the past few months. Shares were down 20% until Friday.
Shanahan predicts that Buffett will use his hands-off management approach with Precision Castparts. He said, “It seems like it fits very well. They won’t be involved in the operations of the business. Good company at a fair price. It seems very consistent with what Warren Buffett has been attracted to in the past. He’s said for many years that very large acquisitions are hard to identify.”
Last year, Berkshire Hathaway decided to no longer provide direct funds to high speed trading firms.
The deal will probably remove Berkshire from the market for large acquisitions until at least the middle of 2016. Berkshire recently helped coordinate the combination of H.J. Heinz with Kraft Foods Group. Berkshire is also finalizing its acquisition of Procter & Gamble’s Duracell battery division.
The deal may help the successor of Berkshire. Buffett is removing some pressure from the next leader by deploying $37 billion in capital on the Precision Castparts deal. Shanahan remarked, “Anybody taking over the company from Warren Buffett—I think it’s potentially positive here that they would be able to focus on running the business as opposed to putting capital to work initially.”
Source: USA Today
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