On Monday morning, Warren Buffett’s Berkshire Hathaway Inc. confirmed a $32 billion cash purchase of Precision Castparts Corp. The company will pay $235 per share to acquire Precision Castparts, which manufactures parts and equipment for aircraft, power plants and other industrial uses. In total, the deal is valued at $37.2 billion, including outstanding debt.
“I’ve admired PCC’s operation for a long time,” Buffett said in a statement. “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.”
The transaction was unanimously approved by the boards of Precision Castparts and Berkshire Hathaway. It is expected to close during the first quarter of 2016. After the announcement, shares of Precision Castparts rose $36.96 — or 19.1 percent — to $230.84 in premarket trading.
Berkshire Hathaway Skilled at Large Deals
The purchase certainly isn’t Berkshire Hathaway’s first large-scale deal. In June 2015, H.J. Heinz Co announced that Berkshire Hathaway had become a majority shareholder after it purchased approximately 46.2 million shares for nearly $462,000.
In July 2014, Berkshire Hathaway helped finance Burger King’s $11.4 billion purchase of Tim Hortons Inc., a deal that created the world’s third-largest fast food chain.
Berkshire Hathaway owns a diverse assortment of businesses, spanning clothing, brick, furniture and utilities companies. It also has large stakes in big name organizations, including Wells Fargo & Co., IBM and Coca-Cola.
Precision Castparts Aligns With Warren Buffett’s Style
The acquisition doesn’t come as a surprise to many investors. Precision Castparts has merits traditionally admired by Warren Buffett, including high barriers of entry for competitors, a long-term outlook and stock that has recently underperformed, according to Bloomberg.
Mark Donegan, chairman and chief executive officer of Precision Castparts, expressed his enthusiasm in joining forces with Berkshire Hathaway.
“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. “We believe that as part of Berkshire Hathaway, PCC will be exceptionally well-positioned to support our customers’ needs into the future. 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.”
Precision Castparts, which is based out of Portland, Ore., has approximately 29,350 employees at 157 manufacturing facilities. It will continue to maintain its headquarters and brand.
Precision Castparts amassed $10 billion in revenue during its 2015 fiscal year, with $1.5 billion in net income from continuing operations. It generates approximately 72 percent of its revenue from the aerospace sector, 15 percent from the energy industry and 13 percent from general industrial customers and other industries.
Photo credit: Mark Mathosian