Berkshire Hathaway Inc.’s proposed .2 billion acquisition of Precision Castparts Corp. will see some 30 Southern California Precision subsidiaries land in Warren Buffett’s portfolio.
And the deal should be good for Precision Castparts. In recent years, the company has bought chemical maker Lubrizol and industrial manufacturer Marmon. Buffett explained the importance of the deal to FOX Business Network’s Liz Claman.
The purchase fits well with the Berkshire playbook, as Portland, Ore.-based Precision Castparts is a long-cycle business with high barriers to entry.
“All (Donegan) wants to do is run Precision; he doesn’t want to run Berkshire, and that’s true of most of our managers”, Buffett told CNBC.
And this plan was vital to Buffett, who said he would never have gone ahead with the deal if he was not “100 percent sure” that Donegan would be in charge for a long time to come.
“His selection field is extremely limited”, Morgan said. Yet generally the company is viewed as a well-managed enterprise.
Berkshire Hathaway also invests in well-known names like Wells Fargo, Coca-Cola and IBM. It was an especially weak quarter for Berkshire’s insurance units but it illustrates the conglomerate’s increasing reliance on manufacturing, utilities and the railroad.
Buffett’s Berkshire Hathaway said it would buy Precision Castparts in a deal valuing the company at US$32.3 billion. The deal is valued at $37.2 billion including debt. “We’re planning to hold it forever, so we don’t really look at the short-term outlook in terms of making decisions on stocks or businesses”, he said. “We’re certainly paying a very good price”, said Buffett.
The industrials sector rose 1.81 per cent, buoyed by Precision Castparts, which also give the third biggest boost to the S&P 500.
The company’s stock was trading Monday at $231.05, up more than 19%.
“It could raise its costs a bit, but for a company of this size, it’s not significant”, said Brian Reynolds, chief market strategist at New Albion Partners in New York.
Precision Castparts is one of only three Fortune 500 companies headquartered in Oregon. The transaction, expected to close early next year, must still be approved by PCC shareholders and receive the necessary regulatory approvals.