Buffett seals biggest deal
By Ben Griffiths
THE latest and biggest in a recent l i ne of global takeovers was announced yesterday as US investor Warren Buffett snapped up aircraft parts and engineering group Precision Castparts for £24bn.
The deal is the largest ever made by Buffett’s Berkshire Hathaway investment vehicle and comes just days before his 85th birthday on August 30.
The billionaire acquired Berkshire Hathaway in 1965 and spent five decades transforming it from a humble textiles business into a massive conglomerate with interests spanning the world, including chunks of giants such as Coca-Cola and American Express. It also was involved in the takeover of Heinz in 2013 and backed the beans and ketchup company’s takeover of Philadelphia cheese-maker Kraft earlier this year – transforming a $9.5bn investment in the former HJ Heinz Co into a stake in Kraft Heinz worth roughly $25.5bn.
Prior to the Precision Castparts coup, his previous biggest deal was the 2010 purchase of the 77.4pc of the Burlington Northern Santa Fe railroad he did not already own.
Buffett is nicknamed as the ‘Sage of Omaha’ f or his l ong- term approach to investing in undervalued and often unloved businesses. He is also known for his frugal lifestyle, despite a fortune estimated at around £67bn that places him in the top-five of the world’s richest men.
Precision Castparts claims to manufacture bits of every aircraft flying today, including nuts and bolts for engines and industrial gas turbines for the likes of Airbus, Boeing, GE and Rolls-Royce.
The group employs 3,500 people spread across 13 sites around England, Wales and Scotland, where it operates under several subsidiary names including Caledonian Alloys, AETC Limited, Wyman- Gordon, SPS Aerostructures, TIMET and AF Aerospace.
Precision Castparts will become a unit of Berkshire, keeping its name and management as well as its headquarters in Portland, Oregon.
The company last night said it expected it to be ‘business as usual for employees and customers’ once the sale to Berkshire Hathaway is completed.
Once the deal is completed Precision Castparts – which employs around 30,000 people – will join several industrial companies that Buffett has bought in the last decade, including toolmaker Iscar, parts maker Marmon, and chemicals company Lubrizol.
The merger is expected to close in the first quarter of next year.
Precision generates 70pc of its revenues by selling nuts, bolts and other fittings for the aerospace industry, where booming commercial aircraft demand has led US planemaker Boeing and European rival Airbus to boost production.
But Precision has been adversely affected by the slump in oil prices which hit its energy company customers.
Buffett said he still would have bought it without this, telling CNBC television: ‘We’re going to be in this business for 100 years.’
In statement Buffett said: ‘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.’
Buffett said Berkshire would use about $23bn (£14.8bn) of its own cash to finance the purchase, and borrow the rest. That leaves the group with more than $40bn of cash, twice the cushion Buffett wants, although he said it would be at least a year before Berkshire could pursue another ‘elephant’ - a reference to the gigantic size of the Precision transaction.
Buffett hasn’t always been successful in his investments.
His purchase of Tesco stock came back to haunt him when the British retailer’s recent problems hammered its shares, prompting him to estimate he lost $444m on the holding.