Buffet makes biggest ever investment in buying Precision Castparts for US$37.2bn

Known as the Sage of Oregon, Warren Buffet, owner of investors Berkshire Hathaway, has continued his heavy investment in American companies. This time he has used over half of his company’s financial resources of $67bn with the purchase of Portland, Oregon-based Precision Castparts, which manufactures nuts, bolts and other fasteners, commercial and military airframe aerostructures, and airfoil castings for aircraft engines for aerospace companies including Airbus, Boeing and Rolls-Royce, while also making pipes and fittings for power and industrial companies. Berkshire Hathaway already held a 3% stake in the company, while this offer of $235 per share now values it at $37.2bn including debt.
Precision Castparts is seen as a high-end company where the type of products produced cannot easily be replicated and, as a consequence, it is seen as a sound investment. Low oil prices saw Precision Castparts struggle with weaker demand from the energy sector and last month quarterly profits reported were below expectations. Revenue fell 4% to $2.4bn and operating profit by 16% to $619m. The fall in share value by nearly 30% since the middle of last year may well have been what prompted Buffett and his investment managers, Todd Combs and Ted Weschler, to make their offer which valued the company’s shares at 21% higher than the closing price last Friday.
Buffett is quoted as saying that: “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’ Chairman and Chief Executive, Mark Donegan, 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.”