Warren Buffett’s company is all set to acquire Precision Castparts by paying $37.25 billion.
Business tycoon Warren Buffet’s Berkshire Hathaway confirmed its plans to acquire Precision Castparts Corp. The final price settled for the deal is reported to be $37.2 billion, which, needless to say, is Warren Buffett’s biggest yet.
How will the multi-billion dollar deal be affected? Berkshire already holds a 3 percent stake in the company, valued at more than $880 million, reported CNN. The remaining shares will be bought by Buffet’s company at $235 per share in an all-cash deal. The price offered is at least 21 percent higher than the last closing price of Precision Castparts. The price also assumes the company’s debt.
Has Buffett made a good deal? Precision Castparts Corp. (PCC) is a multi-dimensional company. It doesn’t make standard engineering products. The company is majorly into medical prosthetics, aerospace engine parts, aircraft doors, and components for industrial gas turbines, reported UPI. Extolling the virtues of the company, Buffet had said the following.
“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.”
Considering the industry segments Precision Castparts is involved in, it is apparent that the company makes niche products that have few competitors, if any. This makes the company valuable from a long term perspective, as it will churn out profit dependably for the foreseeable future, even if it continues on the same path, with no intervention from Buffett’s parent company. Moreover, given the production capabilities, Buffett can further optimize or diversify depending on the market condition and squeeze more out of the company.
Interestingly, the very same promising aspects hadn’t done well for the company, and its shares were down by 20 percent for most of the year and hence, Warren Buffett managed to make a great deal that had tremendous upside value proposition that hinges on Buffett’s vision for Precision Castparts.
The mere news that Warren Buffet is willing to shell out $37.2 billion ensured the company was back on investors’ radar. Shares of the company jumped almost 20 percent overnight, making Buffett money even before the acquisition was complete.
While $37.2 billion is certainly a large sum, Buffett’s Berkshire Hathaway had acquired Burlington Northern Santa Fe railroad in 2009 for about $27 billion. This acquisition merely cements the fact that Buffett’s appetite for bigger companies and even bigger deals is far from satiated.
[Image Credit: Alex Wong / Getty Images]