Berkshire Mega-Deal Typifies Buffett’s Bargain Hunting

SMITH BRAIN TRUST -- Berkshire Hathaway’s $32.6 billion buyout of Precision Castparts Corp. represents the Warren Buffett conglomerate’s largest-ever takeover.  But it also “exemplifies Buffett’s determination to find cheap and out-of-favor companies with a history of strong earnings and high barriers to competition,” reports the Omaha World-Herald, paraphrasing David Kass, clinical professor of finance at the University of Maryland’s Robert H. Smith School of Business.

The Portland, Ore.-based firm supplies parts for airline and oil-and-gas industries. While its shares have fallen with global oil prices, the company reported $10 billion in revenues and a $1.5 billion net income during the 2015 fiscal year. The deal, pending shareholder approval in the first half of next year, totals $37.2 billion including debt.

Heading into the deal, Berkshire holds $66.58 billion and will pay $235 cash per share, leaving up to about $33 billion. “Berkshire wants to keep $20 billion in cash at all times,” Kass says. “This will be a friendly deal with current management kept in place to fit the Berkshire model.”

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