Buffett also backed the merger that created Kraft Heinz Co., and Berkshire said Friday in its second-quarter report that results for the three months ending September 30 will probably include a pretax gain of about $7 billion tied to the transaction. At that size, the deal would rank as Berkshire’s largest ever and represent the latest megamerger in a robust year for deal making.
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At the 2014 annual meeting, Mr. Buffett said he was willing to make a deal of up to $50 billion, using cash and borrowing at low interest rates.
Mr Buffett’s largest deal to date was the takeover of the Burlington Northern Railroad in 2009, when Berkshire paid $26 billion for the 77 per cent of the company it did not already own.
Precision Castparts makes components such as nuts, bolts and other fasteners for aerospace companies such as Airbus and Boeing, an industry that accounts for roughly 70 percent of sales.
Earnings from its operating businesses disappointed analysts, too, falling 10 per cent to $3.89 billion because of underwriting losses in its reinsurance arm.
Precision Castparts is a Portland, Oregon-based Fortune 500 company that manufactures components for aerospace, power, and industrial companies.
Precision Castparts has grown rapidly through a series of acquisitions, but its stock price has been weighed by a series of production problems, destocking by one of its largest customers and the exposure of its pipeline business to the oil and gas sector. The company’s stock has fallen 17 percent this year, hurt by falling demand for products used by energy producers. Its price as a multiple of forward estimated earnings has traded at a discount to that of the broader market since the start of this year.
“That’s the real positive of the year, and that will come in the third quarter”, Kilpatrick said.
The acquisition of Precision Castparts would enhance Berkshire’s presence in the industrials sector, while cutting dependence on insurance and investing in stock markets for growth.
The acquisition would dovetail with Berkshire Hathaway founder Warren Buffett’s decade-long push into the industrial sector.
“That’s the classic Buffet playbook”, said David Rolfe, who manages about 11 billion, including Berkshire shares at Wedgewood Partners Inc.
Neither Berkshire nor Precision Castparts returned calls and emails seeking comment.
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Though it began building that stake in 2012, it remains among the smaller investments in Berkshire’s portfolio. Berkshire’s stake in the combined company is worth almost $26 billion. In addition, it owns insurance operations, utilities and one of the country’s largest railroads.
