Buffett makes his biggest deal — for an airplane parts firm
Warren Buffett is making the biggest bet of his long and well- documented investment career, a $ 32.36 billion US buyout of Precision Castparts in a deal that will continue to reshape his Berkshire Hathaway conglomerate.
The acquisition of the aerospace and industrial fabrication company would top Buffett’s $ 26.7 billion US deal for BNSF railroad in 2010.
It also follows several recent huge deals outside of the core insurance companies that Buffett built his investment empire on that included manufacturing, railroads, utilities and food companies.
Buffett said Monday that Berkshire will pay $ 235 US per share in cash for Precision Castparts’ outstanding stock. The deal is valued at about $ 37.2 billion US, including debt.
Precision Castparts will keep its name and continue to be based in Portland, Oregon.
According to the company’s website, it also has subsidiaries with several locations in Canada — including PCC Aerostructures Dorval Inc. near Montreal, Centra Industries in Cambridge, Ont. and two Southwest United sites in the Greater Toronto Area.
Author and investor Jeff Matthews, who wrote Warren Buffett’s Successor: Who It Is and Why It Matters, said he doesn’t think Berkshire is getting a good price on Precision Castparts, so he’s not sure it will be good for shareholders, especially since Precision’s business is tied to the airline industry.
“I’m not crazy about buying a cyclical business like this with the stock market at an all- time high,” said Matthews, who also holds Berkshire stock.
But other analysts said the price appeared fair.
KBW analyst Meyer Shields said Precision Castparts Corp. may be a cyclical business, but Berkshire already owns a number of those and doesn’t mind uneven profits in the short term. Shields said Precision Castparts stock had traded as high as $ 280 US in recent years.
“From the Berkshire perspective, they’re getting a good company on sale,” Shields said.
The boards of Precision Castparts and Berkshire Hathaway Inc. unanimously approved the transaction, which is expected to close in the first quarter of next year.