Investment tycoon Warren Buffet’s Berkshire Hathaway recently acquired Precision Castparts for $32 billion. Buffet credits the decision to acquire the aerospace supplier to his investment manager Todd Combs who bought stock in Precision Castparts in 2012. As early as March 1, Berkshire was one of the company’s largest shareholders with a 3% stake.
However, Buffet didn’t decide to outright purchase the company until Precision Castparts’ CEO Mark Donegan stopped by the Berkshire Hathaway office as part of a routine visit to shareholders. Buffet was so impressed by Donegan that he soon proposed to Combs that they should look into acquiring Precision Castparts. Although Adding Precision Castparts would only boost Berkshire’s overall profit by only about 8%, Buffet is betting on an aerospace boom to justify the incredible acquisition which, including assumed debt of Precision Castparts, is valued at $37.2 billion.
The acquisition of Precision Castparts fall perfectly in line with the investment tendencies of the Oracle of Omaha. Precision Castparts shares have fallen in recent months as the company has said it faces uncertainty in its businesses that cater to the oil and gas industry. As recently as Friday, Precision Castparts’s shares closed at about $194-down about 20% year to date. And while such a precipitous decline might strike fear into the hearts of investors, a traditional value-based investor like Buffet sees this as a major opportunity to capitalize on a market inefficiency. It is this unwavering belief in his ability to exploit the market trends that has Buffet’s company being worth over $67 billion dollars. Even though Berkshire Hathaway has over $67 billion dollars on its books as of the end of the second quarter, Buffet states that he likes to keep a cushion of $20 billion as Berkshire Hathaway doesn’t like to use its stock to pay for deals, so the company could use a combination of its own cash and some financing to pay for Precision Castparts.
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