Warren Buffett closing in on his biggest ever deal
Published 10/08/2015 | 07:59
Warren Buffett's Berkshire Hathaway is nearing an agreement to buy Precision Castparts, in what could be the company's largest purchase ever, according to a person familiar with the matter.
The purchase of Precision Castparts, which makes aircraft components and energy-production equipment, could be announced as soon as next week and cost more than $30 billion, assuming typical premiums for mergers, according to the Wall Street Journal, which first reported the news. Precision Castparts' market value was $26.7 billion on Friday.
Neither Berkshire nor Precision Castparts returned calls and emails seeking comment.
Berkshire is one of Precision Castparts' largest shareholders, with a roughly 3 percent stake worth $882 million as of March 31, according to securities filings.
Though it began building that stake in 2012, it remains among the smaller investments in Berkshire's portfolio. Such investments are normally picked by Buffett's investment managers, Todd Combs and Ted Weschler.
The addition of Precision Castparts would extend Buffett's decade-long push into the industrial sector, where he has bought such companies as parts maker Marmon, Israeli toolmaker Iscar, and specialty chemicals company Lubrizol.
He considers those companies among his "Powerhouse Five" collection of non-insurance businesses that contribute greatly to Omaha, Nebraska-based Berkshire's bottom line.
Precision Castparts makes components such as nuts, bolts and other fasteners for aerospace companies such as Airbus and Boeing, an industry that accounts for roughly 70 percent of sales. It also makes products such as pipes and fittings for power and industrial companies.
The company reported a profit of $1.53 billion on net sales of $10 billion for its fiscal year ended March 29.
But it has struggled with slack demand in some businesses, and last month missed analysts' quarterly profit forecasts as Chief Executive Officer Mark Donegan lamented a "challenging" oil and gas environment.
Precision Castparts shares have fallen 29 percent since June 2014, and have lagged the Standard & Poor's 500 .SPX by close to 30 percentage points over the last five years.
Berkshire shares have also lagged that index over five years, but by a smaller percentage.
A purchase would likely let Berkshire deploy much of its $66.59 billion of cash, while still leaving the $20 billion cushion Buffett wants.
Berkshire's biggest purchase is the $26.5 billion takeover in 2010 of the 77.4 percent of the Burlington Northern Santa Fe railroad it did not already own. It has more than 80 operating businesses.