World Class Faculty & Research / August 10, 2015

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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About the University of Maryland's Robert H. Smith School of Business

The Robert H. Smith School of Business is an internationally recognized leader in management education and research. One of 12 colleges and schools at the University of Maryland, College Park, the Smith School offers undergraduate, full-time and flex MBA, executive MBA, online MBA, business master’s, PhD and executive education programs, as well as outreach services to the corporate community. The school offers its degree, custom and certification programs in learning locations in North America and Asia.

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