Stocks got a boost before the market opened with news that Buffett’s Berkshire Hathaway agreed to buy Precision Castparts for about $37 billion. It ended up paying a 21% premium.
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“People are looking at this as a buying opportunity”, said Larry Weiss, head of trading at brokerage Instinet, referring to the Precision Castparts deal. The $37 billion deal would be one of Berkshire’s largest acquisitions ever.
The recently completed purchase of the Van Tuyl Group, the largest privately owned U.S. auto dealer, also makes Berkshire Hathaway Automotive the fifth-largest dealership group in the U.S., positioning it to take advantage of travel, highway shipping of goods and fix of vehicles in both industries.
PCC is based in Portland, Oregon, and it manufactures some of the metal components that go into aircraft engines and industrial gas turbines.
Buffett told CNBC that the acquisition would have gone ahead even if he knew that energy prices were in the midst of a multi-year slump.
The boards of directors of Berkshire Hathaway Inc. and Precision Castparts Corp. He said that when Berkshire CEO Warren Buffet acquires a company, most of the infrastructure stays intact.
Precision Castparts has a factory in Abington Township that employs about 900, including 60 temporary workers.
When the Federal Reserve raises interest rates, it would support higher bond yields, helping Precision’s and other U.S. pensions to reduce their funding deficits, said Zorast Wadia, principal and consulting actuary at Milliman.
“I think he’s setting things up for the future and he doesn’t want anything terribly risky”, said Andy Kilpatrick, the investor who wrote “Of Permanent Value: The Story of Warren Buffett”. And this plan was vital to Buffett, who said he would never have gone ahead with the deal if he was not “100 percent sure” that Donegan would be in charge for a long time to come.
Standard & Poor’s announced late Tuesday that it is placing its ratings on Berkshire Hathaway on CreditWatch Negative over uncertainty about how Berkshire will finance the deal.
Buffett advocates buying companies whose products you like and his 9% stake in the world’s biggest soft drink maker is an exemplar of that strategy.
Over the past five years, the company’s shares have underperformed the S&P 500 by nearly 30 percentage points.
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KBW analyst Meyer Shields said Precision Castparts Corp. may be a cyclical business, but Berkshire already owns a number of those and doesnt mind uneven profits in the short term.
