Precision jumped 19.1 per cent, while Berkshire B shares dipped 0.1 per cent.
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But The Wall Street Journal said Buffett is betting that “airlines will continue driving a boom in aerospace manufacturing”.
“I’m not insane about buying a cyclical business like this with the stock market at an all-time high”, said Matthews, who also holds Berkshire stock.
Shareholder rights attorneys at Robbins Arroyo LLP are investigating the proposed acquisition of Precision Castparts Corp (NYSE: PCP) by Berkshire Hathaway Inc.
KBW analyst Meyer Shields said Precision Castparts Corp. may be a cyclical business, but the complicated products it makes are hard for a competitor to match.
Companies such as $2 billion KLX or $1.2 billion Astronics would be pocket change for Berkshire, which will still have about $40 billion in cash after the Precision Castparts takeover closes.
Now the sprawling Berkshire conglomerate, based in Omaha, Nebraska, has a large number of majority and minority stakes in everything from small jewelry and furniture retailers to insurance giants Geico and General Re, chemicals group Lubrizol, Coca-Cola, IBM, American Express, Wells Fargo Bank and dozens of other companies.
This acquisition merely cements the fact that Buffett’s appetite for bigger companies and even bigger deals is far from satiated. Engine and aircraft manufacturers make up nearly 50 percent of its yearly $10 billion sales. But Precision, a maker of aerospace and other parts, has posted lacklustre results for the past year, most recently in late July when it reported an 18 percent decline in net income for its fiscal first quarter.
It would also give Berkshire ownership of 10 companies that standing alone would be big enough to join the Fortune 500, plus 26.9 per cent of Kraft Heinz Co. The company had long-term debt of $4.78 billion.
“The market took their cues from China overnight and the Berkshire deal in another factor driving investor sentiment [on Monday]”, said Aaron Clark, a portfolio manager at GW&K Investment Management.
Precision Castparts, meanwhile, has grown rapidly through a series of acquisitions, but its stock price has been weighed down 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.
However, Fed Vice Chairman Stanley Fischer told Bloomberg TV that US inflation is only temporarily “very low” due in part to commodity prices.
And the deal should be good for Precision Castparts. The company name will remain Precision Castparts. Credit Suisse and the law firms Cravath, Swaine & Moore and Stoel Rives advised Precision Castparts.
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Dana Mattioli, Anupreeta Das and Doug Cameron contributed to this article.
