US stocks climbed on Monday, giving the S&P 500 its biggest gain since May as indexes bounced back sharply from last week’s losses, buoyed by gains in commodity-related shares and optimism over Warren Buffett’s latest deal.
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“I’ve admired [The Precision Castparts’] operation for a long time”. The deal isn’t likely to have a huge impact on Oregon’s economy – unlike other big investors, Buffett buys companies because he likes the way they’re run, not to shake them up.
“This is a very high multiple for us to pay”, he told CNBC television.
Berkshire shares have also lagged that index over five years, but by a smaller percentage.
Precision Castparts makes components such as nuts, bolts and other fasteners for aerospace companies such as Airbus Group and Boeing, an industry that accounts for roughly 70% of sales. The company employs about 30,000 worldwide, including about 300 in its Redmond plant, according to The Bulletin archives.
Berkshire had previously owned 3 percent of the company, and was its largest shareholder. Analysts presently expect earnings of $12.61 per share this year on a 1.6% improvement in the top line, while next year’s anticipated revenue of growth of 5.2% is expected to drive per-share profits to $14.22.
Known for buying undervalued and often unloved companies, Buffett acknowledged paying a steep price for Precision Castparts, which has been hurt by falling oil and gas prices.
Shares of PCC soared 19.1 percent to $230.88 in morning trade on the New York Stock Exchange.
The purchase, like Berkshire’s $26.5 billion buyout of Burlington Northern Santa Fe Corp.in 2010, continues Buffett’s push to diversify Berkshire away from insurance and financials and towards industrials.
Precision Castparts, which is based out of Portland, Ore., has approximately 29,350 employees at 157 manufacturing facilities.
“We will have about United States dollars 40 billion in cash once we get through this”, Buffett said.
Precision Castparts last year received five years’ worth of property tax breaks to offset the $2 million cost of new machinery at the 52,000-square-foot plant on NE Hemlock Avenue, Redmond.
“We see a unique alignment between Warren’s management and investment philosophy and how we manage PCC for the long-term”, Donegan said in a statement. The companies expect the deal to be completed in the first quarter of 2016. The acquisition fits Buffett’s mold, but coincides with cyclical highs in plane orders, stock valuations and M&A.
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For the deal, Credit Suisse acted as financial advisor and Cravath, Swaine & Moore LLP and Stoel Rives LLP as legal counsel to Precision Castparts. Berkshire Hathaway’s legal counsel was Munger, Tolles & Olson LLP.
