Precision Castparts’ shares jumped as much as 19.4 percent to US$231.47, while Berkshire Class B shares dipped 0.2 percent to US$143.27. Buffett’s industrial empire is now worth $354 billion.
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Shareholders still need to approve the deal: $32 billion in cash plus the assumption of debt. Precision Castparts traded at $273.99 per share in June 2014, a five-year high, according to the NYSE.
Precision bought Exacta Aerospace – which machined parts, kits and assemblies for the aerospace industry and had more than 200 employees – to enter the Wichita market.
Berkshire Hathaway paid around $27 billion in 2009 for the Burlington Northern Santa Fe (BNSF) railroad.
Precision Castparts will maintain its headquarters in Portland, Oregon, the companies said in a joint statement.
Precision Castparts will keep its name and will remain in Portland. If this happens, it can be the biggest takeover ever by the conglomerate. We do not, however, expect the full impact on our Berkshire fair value estimate to be greater than 10%. Berkshire’s $235 a share price represents a 21% premium over its Friday closing price. This makes the company valuable from a long term perspective as it will churn out profit dependably for the foreseeable future even if it continues on the same path, with no intervention from Buffett’s parent company. “All deals seem expensive to me, but this one doesn’t”. The company makes components such as nuts and bolts for aerospace companies, but also components for industrial gas turbines.
The mere news that Warren Buffet is willing to shell out .2 billion, ensured the company was back on investors’ radar. It is expected to close during the first quarter of 2016. Precision has a reputation as a strong performer but its stock has under-performed in recent years in part because of chairman and CEO Mark Donegan’s refusal to give in to calls for more buybacks, preferring instead to use some of his cash to pursue growth.
The proposed acquisition, which remains subject to approval by Precision Castparts’ stockholders, also is the latest multibillion-dollar deal in a series of giant mergers involving U.S. companies this year.
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PCC acquired Environment One for $72 million in 1998, then three years later sought to move the company out of state, preferably to Houston, where PCC had some spare factory capacity.
