BUFFETT BUYS AEROSPACE FIRM FOR $37B
Acquiring Precision Castparts is the largest deal ever for Berkshire Hathaway
Billionaire investor Warren Buffett’s Berkshire Hathaway reached a deal to acquire aerospace supplier Precision Castparts in a deal valued at $37.2 billion, including assumption of debt.
It’s the largest deal ever for Nebraska native Buffett, who has long emphasized buying low, acquiring only things that you understand and investing for the long run.
Berkshire (BRK.A, BRK.B) said Monday that it would pay $235 per share in cash for all of Portland, Ore.-based Precision Castparts’ (PCP) shares. That represents a 21% premium on the stock’s Friday closing price of $193.88.
“I’ve admired PCC’s operation for a long time,” Buffett said in a statement. “For good reasons, it is the supplier of choice for the world’s aerospace industry, one of the largest sources of American exports.”
The companies expect the deal to close in the first quarter of 2016. A majority of Precision Castparts shareholders must approve the deal.
“This is right up there at the top” of expensive deals, Buffett told CNBC. “This is a very high multiple for us to pay.”
But Jim Shanahan, an Edward Jones analyst who tracks Berkshire, said Buffett didn’t overpay.
“The stock’s been down. It’s been hit pretty hard recently,” Shanahan said. “So from that standpoint it makes sense. This is a really good company with a very strong management team.”
Precision Castparts has about 29,350 employees at 157 manufacturing facilities. It had $10 billion in revenue in its 2015 fiscal year with $1.5 billion in net income from continuing operations.
The deal is likely to take Berkshire out of the market for large acquisitions at least through the middle of 2016.
Buffett’s big deal could help clear the path for the 84-year-old investor’s eventual successor at Berkshire. By deploying $37 billion in capital on the Precision Castparts deal, Buffett is taking some pressure off his company’s next leader.
“Anybody taking over the company from Warren Buffett — I think it’s potentially positive here that they would be able to focus on running the business as opposed to putting capital to work initially,” Shanahan said.