Berkshire Hathaway’s Acquisition of Precision Castparts         

Berkshire Hathaway’s Acquisition of Precision Castparts

Case Synopsis

A young investor, owns stock in Precision Castparts. Berkshire Hathaway is about to complete its purchase of PCC, and the investor must decide whether to take the cash and invest elsewhere or invest in Berkshire Hathaway. He is not sure if Berkshire Hathaway is paying a fair price for PCC. The case explores the industry outlook at the time of the acquisition and Berkshire Hathaway’s and PCC’s past history. The case includes details of the negotiation from PCC, information about how Warren Buffett makes investment decisions and information about valuing PCC.

Computations are NOT REQUIRED for the “brief analyses.”

Suggested Questions

1. What are the prospects for a company in the industries where PCC does business? (Optional) What would a Porter’s Five Forces analysis show about these industries?
2. What does a ratio analysis/financial statement analysis show about PCC? Is it a fundamentally sound investment for Berkshire Hathaway?
3. What is the stock market reaction to news that PCC might be purchased by Berkshire Hathaway? Is it possible for an investor to make excess returns by investing in PCC? Can he earn excess returns because of his ownership of PCC?
4. What is the value of PCC? Use the discounted cash flow method (free cash flow discounted by weighted average cost of capital), comparable multiples valuation and comparable transactions valuation.
5. What are possible synergies that might result from Berkshire Hathaway’s acquisition of PCC?
6. Does the acquisition of PCC fit in with Warren Buffett’s acquisition goals and methods? Would being acquired by Berkshire Hathaway be a good fit for PCC as well?
7. Using the limited information that you have about the investor’s investing goals, should he invest the proceeds from the sale of PCC in Berkshire Hathaway stock, or should he invest his new funds elsewhere?