Precision Castparts led industrial stocks higher after Warren Buffett’s Berkshire Hathaway agreed to buy the maker of aircraft components for $32 billion.
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Precision’s shares have shed some 20% for a year now, partly due to its involvement with the energy market that has been hit by plummeting oil prices.
Author and investor Jeff Matthews, who wrote Warren Buffetts Successor: Who It Is and Why It Matters, said he doesnt think Berkshire is getting a good price on Precision Castparts, so hes not sure it will be good for shareholders, especially since Precisions business is tied to the airline industry. The $354 billion empire pulls in a huge amount of profit from its interests, with the company reporting a cash stockpile of almost $67 billion in late June.
“They have these incredibly long relationships with some of their customers”.
“At some level, any company that Berkshire Hathaway would come knocking on the door saying we’d like buy to you, should be incredibly flattered”, said Michele Henney, a professor of finance and accounting at the University of Oregon.
The U.S. market has remained range-bound for much of 2015 in anticipation of the Fed’s first rate hike in almost 10 years.
Berkshire had been an investor in Precision Castparts since 2012 and is one of its largest shareholders with a roughly three per cent stake. Airbus fell 3.3%. Berkshire Hathaway eased 0.8%.
“We are very pleased to be joining forces with Berkshire Hathaway“, Mark Donegan, PCC’s chairman and chief executive officer, said in a statement.
This acquisition merely cements the fact that Buffett’s appetite for bigger companies and even bigger deals is far from satiated.
Shares of Precision Castparts surged 19 percent, or $37.04, to close at $230.92 in trading Monday, and were flat Tuesday. These positions are reported with a lag, so there’s no way to know whether portfolio managers ditched Precision Castparts during the intervening weeks.
Buffett has said time and again that he only buys companies he understands, and at a relatively low price.
In Berkshire’s second quarter, the company generated roughly three-quarters of its $4 billion net income from non-insurance companies.
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