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Warren Buffett’s Berkshire Hathaway Makes Biggest Ever Acquisition For $37.2 Billion

Written by on August 10, 2016

The Berkshire Hathaway conglomerate-cum-empire of Warren Buffett grew more diverse today as it announced it had acquired a metal parts manufacturer called Precision Castparts for $37.2 billion, including debt.

Berkshire now has holdings in companies as diverse as insurance, railroads, chocolates and the latest company that makes airplane parts. Berkshire’s market capitalization stands at a gargantuan $354 billion with businesses such as Geico, Burlington Northern railroad and Sees Candies.

Berkshire’s offer of $235 a share for Precision Castparts represents a 21%  premium to its closing price on Friday. Mr. Buffett said in a news release:

“I’ve admired PCC’s operation for a long time. For good reasons, it is the supplier of choice for the world’s aerospace industry, one of the largest sources of American exports. Berkshire’s Board of Directors is proud that PCC will be joining Berkshire.”


The Precision Castparts Chairman and CEO Mark Donegan said:

“We are very pleased to be joining forces with Berkshire Hathaway. We see a unique alignment between Warren’s management and investment philosophy and how we manage PCC for the long-term. We believe that as part of Berkshire Hathaway, PCC will be exceptionally well-positioned to support our customers’ needs into the future. This transaction offers compelling and immediate value for our shareholders, and allows PCC’s employees to continue to operate in the same manner that has generated many years of exceptional service and performance to our customers.”


Berkshire has had holdings in Precision Castparts since 2012 and is one of its largest shareholders with a roughly 3% stake. Berkshire most recent big buy was when it teamed up with Brazilian investment firm 3G Capital to buy Heinz for $23 billion.

Precision Castparts reported $1.5 billion in profit for the year, ended March 29, on $10 billion in sales. It began operating under the Precision Castparts name in 1953, and employs more than 30,000 people at 155 plants worldwide. The Oracle of Omaha who recently celebrated 50 years of leading Berkshire in May, has deployed a significant chunk of the $60 billion cash Berkshire had to make this purchase. Clearly, he found the stock to be underappreciated.

Mr. Buffett has written in his letter to investors:

With the acquisition of Van Tuyl, Berkshire now owns nine-and-a-half companies that would be listed on the Fortune 500 were they independent (Heinz is the half),” Mr Buffett wrote in his annual letter to shareholders this year. “That leaves 490-and-a-half fish in the sea. Our lines are out.”

Berkshire had reported less than inspiring second quarter results on Friday with profit down 37% and a loss in the insurance underwriting business. But Mr. Buffett is known to be a long-term player and aircrafts manufacturing is a simple business that fits his business worldview. It’s not too complicated and it’s not going away any time; just like Coca-Cola or Gillette.

In his annual letter to shareholders, Mr. Buffett had outlined what he looks for in a company that he considers worthy of acquisition: he wants businesses that are consistently profitable with proven management and leadership in place. This is quite a far cry and precisely the opposite from the mindset of a typical Silicon Valley Venture Capitalist but that’s Mr. Buffett for you, the old school investing genius who has quite a track record to show over the past half-century.

Prior to today, Precision Castparts’ shares had fallen 20% in 2015, and the purchase price is below the shares’ 52-week high of $249.05 set last September. Berkshire’s Class A shares fell as low as $212,010 before ending the day at $215,300 compared to $215.372.

The deal has not dented Berkshire’s stock price. Precision Castparts ended the day at $230.92, up 19% since Friday. The stock had touched highs of $247 in September of last year.

This makes this Monday an interesting day with two major developments related to major publicly traded companies as Google announced its own historic — and surprise — restructuring into a conglomerate that would be more like Berkshire.