Berkshire Hathaway to buy Precision Castparts for $32.36 bn

10 Aug 2015

Warren Buffett's Berkshire Hathaway is buying buy Precision Castparts Corp for about $32.36 billion.

Berkshire will pay $235 per share in cash for Precision Castparts' outstanding stock, in a deal valued at about $37.2 billion, including debt.

Precision Castparts would keep its name and base in Portland, Oregon.

Precision Castparts did a lot of business with the energy sector, and had taken a hit with oil prices now down to a six-year low.

Buffett told CNBC that the acquisition would have gone ahead even if he knew that energy prices were in the midst of a multi-year slump.

"We're going to be in this business for 100 years, so it doesn't really make any difference what oil and gas does in the next year," Buffett said.

The transaction was approved unanimously by the boards of Precision Castparts and Berkshire Hathaway Inc and was expected to close in 2016's first quarter.

Shares of Precision Castparts jumped $38.37, or 19.8 per cent, to $232.25 in Monday premarket trading.

Precision Castparts counts a workforce of around 30,000 and had $2.6 billion in pretax operating income on a revenue of $10 billion in its last fiscal year.

According to commentators, the acquisition could use almost half of Berkshire's cash holdings for the 66-year-old Precision Castparts that had consistently delivered profits in recent years even as it expanded through acquisitions.

Precision Castparts had qualities that Buffett sought, with high barriers to entry by competitors, a business that demanded a long-term outlook, and a stock that had underperformed in recent years, according to David Rolfe, who managed about $11 billion including Berkshire shares at Wedgewood Partners Inc.

''That's classic Buffett playbook,'' Rolfe said, Bloomberg reported. ''He is picking up a very unique franchise that can continue to consolidate the industry.''

Precision Castparts said in July that it expected $10 billion to $10.4 billion in sales and an operating margin of about 27 per cent in its current fiscal year, which ended in March.

Last year, 70 per cent of the company's sales were made to the aerospace industry, with another 17 per cent going to the energy market.

''Forget about multi-quarter, this is a business that's multi-decade in nature,'' Rolfe said. ''They have these incredibly long relationships with some of their customers. And people aren't going to Fred's mouldings or Fred's castings to get a little bit cheaper part on the inside of a jet engine.''