Business
Berkshire Hathaway will buy Precision Castparts for $37.2 billion in Warren Buffett's biggest bet yet. The move will help move Mr. Buffett’s company — which includes earlier acquisitions ranging from the Burlington Northern Santa Fe railroad to Fruit of the Loom underwear — further into the industrial sector, reports the New York Times. Including debt, the transaction is worth $37.2 billion. Not only is the acquisition Mr. Buffett’s most ambitious — just weeks from his 85th birthday, but it is also a standout in what has been a banner year for mergers, with more than $2.7 trillion in deals already announced.
Deal watchers and fans of Berkshire Hathaway have long expected the conglomerate to strike huge deals with regularity. The company generates an enormous amount of cash from its various operations, sitting on nearly $67 billion as of June 30. And Mr. Buffett has long spoken about his “elephant gun,” the huge pile of cash that Berkshire Hathaway has reserved for big deals, and his itchy trigger finger. Precision Castparts would fit in well with the conglomerate’s other industrial acquisitions in the last decade, including the chemical maker Lubrizol and the industrial manufacturer Marmon. “I’ve admired P.C.C.’s operation for a long time,” Mr. Buffett said in a statement on Monday. “For good reasons, it is the supplier of choice for the world’s aerospace industry, one of the largest sources of American exports.”
Known for buying undervalued and often unloved companies, Buffett acknowledged paying a steep price for Precision Castparts, which has been hurt by falling oil and gas prices, writes Reuters. "This is a very high multiple for us to pay," he told CNBC television. Berkshire is paying $235 per share for Precision Castparts, which represents a 21.2 percent premium over Friday's closing price, and 17.5 times projected 12-month profit. The latest purchase shows how hard it is to move the needle at Berkshire, whose own stock has lagged the Standard & Poor's 500 in the last five years and which on Friday posted quarterly operating profit well below analyst forecasts.
Adding Precision Castparts would boost Berkshire's overall operating profit by less than 10 percent. It would also give Berkshire ownership of 10 companies that standing alone could be part of the Fortune 500, plus 26.9 percent of Kraft Heinz. Todd Combs, one of Buffett's investment managers, had begun buying Precision Castparts shares in 2012. "You've got to give credit to Todd Combs for this deal," said Buffett, who turns 85 on August 30. Buffett has run Berkshire since 1965.
