Warren Buffett strikes his biggest deal with $37.2bn Precision Castparts takeover

Warren Buffett

Warren Buffett, the octogenarian multibillionaire investor, has struck his biggest deal by agreeing to buy Precision Castparts, a US maker of aircraft parts and energy production equipment, for $37.2bn (£24bn) including debt.

Berkshire Hathaway, Buffett’s investment company, has agreed to pay $235 a share in cash for Precision Castparts – 21% more than the company’s closing share price on Friday. The deal to buy the Portland, Oregon-based company is Buffett’s latest foray into manufacturing.

Berkshire Hathaway owns about 3% of Precision Castparts after beginning to build its stake three years ago.

The purchase of will extend Buffett’s push into the industrial sector. In the past decade, he has bought companies such as the US industrial components producer Marmon, Israeli toolmaker Iscar, and Lubrizol, the US chemicals company.

Buffett ranks those unglamorous companies among what he calls the “powerhouse five”, non-insurance businesses whose combined earnings are a cornerstone of Berkshire Hathaway’s financial performance. BNSF, the US railway operator purchased for $44bn in 2009, is also on the list.

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.”

Precision Castparts makes nuts, bolts and other fasteners for aerospace companies such as Airbus and Boeing. It also makes pipes and fittings for power and industrial companies.

The company has suffered weakened demand from some sectors and last month reported quarterly profits below expectations. The near-30% fall in its share price since the middle of last year may well have prompted Buffett and his investment managers, Todd Combs and Ted Weschler, to make a bid.

Buffett, 84, is known as the sage of Omaha because he runs Berkshire Hathaway from a nondescript building in Omaha, the largest city in Nebraska. He is known for living frugally despite a fortune estimated at £67bn and has shunned stock market fads in favour of long-term investments since buying Berkshire Hathaway, an ailing textiles business, in 1965.

Mark Donegan, Precision Castparts’ chairman and chief executive, said: “We see a unique alignment between Warren’s management and investment philosophy and how we manage PCC for the long term. 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.”

Berkshire Hathaway’s businesses include insurance companies such as the giant reinsurer General Re, Fruit of the Loom clothing and Dairy Queen, the fast-food chain. The conglomerate also has big stakes in Coca-Cola, American Express, Mars and other US household names.

Buffett admitted in March that his “thumb-sucking” over selling his stake in Tesco cost Berkshire Hathaway $444m. Buffett, who advocates buying when others are fearful, increased his stake in Britain’s biggest retailer in 2012 despite a profit warning but then “dawdled” as the bad news mounted, he said in his annual letter to shareholders.

Buffett is the second richest person in the US and the fourth wealthiest in the world. He has traditionally vied with his friend Bill Gates, founder of Microsoft, and Carlos Slim, the Mexican telecoms mogul, for the top spot but was knocked down to number four last year by Amancio Ortega, founder of Zara, the fashion retailer.

Buffett is giving away almost all his fortune by donating to the Bill and Melinda Gates Foundation, set up by Gates to promote health and education and combat poverty. He donated $2.84bn to the foundation and other charities last month.

Powered by Guardian.co.ukThis article was written by Sean Farrell, for theguardian.com on Monday 10th August 2015 12.44 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010

 

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