As it has grown, the sprawling industrial empire Berkshire Hathaway, with holdings in railroads, insurance, retail and manufacturing, has increasingly looked to strike enormous takeovers in order to lift profit and revenue. As of June 30, the company had $66.6 billion in cash on hand. The $37 billion price tag includes assumption of Precision Castparts’ debt. Monday’s deal still has to undergo scrutiny from PCC’s shareholders and government regulators, but is expected to close in early 2016.
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Warren Buffett, Berkshire’s chairman and CEO, had signaled in his widely read annual letter to shareholders (pdf) that he was interested in making a deal this year “in the $5-20 billion range”.
Credit Suisse was financial adviser to Precision Castparts, while Cravath, Swaine & Moore LLP and Stoel Rives LLP were its legal advisers.
Precision Castparts will keep its name and its headquarters in Portland, Oregon, as a wholly owned subsidiary of Buffett’s holding company, which now owns about 3.0 percent of its stock. Donegan has led Precision Castparts for more than a decade now.
George Morgan, a finance professor at the University of Nebraska at Omaha and a former investment adviser, said Buffett’s field of possible investments is limited because of the size he is looking for today.
Precision Castparts has merits traditionally admired by Warren Buffett, including high barriers of entry for competitors, a long-term outlook and stock that has recently underperformed, according to Bloomberg. Engine and aircraft manufacturers make up nearly 50 percent of its yearly $10 billion sales. “For good reasons, it is the supplier of choice for the world’s aerospace industry, one of the largest sources of American exports”, Buffett said in a statement.
But other analysts said the price appeared fair. “He’s as in love with his company as I am with Berkshire, and that’s saying a lot”.
His investing tenets are legendary: Buy stocks or companies and hold them for the long term, stick with management you know, buy value and avoid stocks in industries you don’t understand, such as certain technologies.
Precision Castparts also makes energy production equipment. It also displays the need for the company to do larger deals to continue its positive trend.
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“This is a business that’s multi-decade in nature”, David Rolfe, who manages about $11bn, including Berkshire shares, at Wedgewood Partners, said of Precision Castparts.
