Warren Buffett Makes Berkshire Hathaway’s Biggest Bet With $37.2 billion Takeover

REUTERS/Rick Wilking

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Guy Bentley Research Associate, Reason Foundation
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Warren Buffett’s Berkshire Hathaway has made its biggest ever investment and is betting on the success of American aircraft and energy parts manufacturer Precision Castparts in a deal worth $37.2 billion.

Berkshire Hathaway shelled out $235 a share, paying a 21 percent premium on the closing price Friday. Precision Castparts recorded $10 billion worth of sales in 2014 and reached a $1.5 billion profit.

However, it hasn’t all been smooth sailing for PCC with the company’s share price falling 17 percent in the last 12 months. Based in Portland, Ore., PPC boasts 30,000 employees and customers including aerospace giants such as Boeing and Airbus. The aerospace industry accounts for 70 percent of PCC’s sales with the rest being made up by the energy part of the business.

“I’ve admired PCC’s operation for a long time,” Buffett told CNBC Monday. “It is the supplier of choice for the world’s aerospace industry, one of the largest sources of American exports.”

Mark Donegan, Precision Castparts’ chairman and chief executive, welcomed the takeover. “We see a unique alignment between Warren’s management and investment philosophy and how we manage PCC for the long term,” Donegan said in a statement. “This transaction offers compelling and immediate value for our shareholders, and allows PCC’s employees to continue to operate in the same manner that has generated many years of exceptional service and performance to our customers,” he added.

The move follows Buffett’s trend of moving toward heavy industry investments and away from financial products. The deal is the biggest since Berkshire Hathaway took over Burlington Northern Santa Fe railroad in 2009 for $26 billion. “All deals seem expensive to me, but this one doesn’t. We’re certainly paying a very good price,” said Buffett.

Berkshire already owned three percent of PCC’s shares. If the regulatory process goes smoothly the deal will be finalized in the first quarter of 2016. subject to regulatory approvals.

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