Buffet Pacificorp Essay

4180 Words17 Pages
Executive Summary: On the 24th May 2005, MidAmerican, a division of Berkshire Hathaway, announced a deal with Scottish Power to acquire Pacificorp, an energy provider to the northwest of America, for $5.1bn in cash and a further $4bn in options. Warren Buffet, the CEO of Berkshire Hathaway, called it the ‘right fit’ and it represented the second biggest deal in his career to date (the largest being General Re). This report evaluates the deal, looking at stock market reaction, valuation of Pacificorp and the effect of intrinsic values. Following this the paper assesses Berkshire Hathaway’s performance since 1965, the result of the acquisition of MidAmerican and the impact on ‘Buffet’s Big Four’, Berkshire’s holdings in American Express, Coca Cola, Gillette and Wells Fargo. The report concludes with a critical assessment of Buffet’s investment philosophies, looking at the impact it has on Berkshire Hathaway and why it is difficult for other investors to replicate Buffet’s strategy and be as successful. The findings indicate that the market reacted positively to the deal, especially for Berkshire Hathaway, beating the average response to an acquisition being announced by over 4%. The increase in Berkshire’s value represents the stock markets opinion on how much they underpaid. Using the enterprise value multiples method, the report finds that the book value of Pacificorp to be $9.2bn, $200m less than the offer value. This implies there is significant intrinsic value when combined with MidAmerican, the new customer base and economies of scale being the 2 most important factors. As a whole, Berkshire Hathaway has been astoundingly successful since 1965, overall comfortably beating the market, only being beaten in years where there is significant S&P 500 gains and suffering less of a loss of value during bad years. The MidAmerican investment has not been as

More about Buffet Pacificorp Essay

Open Document