Warren Buffet Case Study

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Brendan Sookraj FINC 6290 Prof. Mohamed Siraj 06/03/2014 Background Set in 2005, the case study outlines that Berkshire Hathaway’s subsidiary, MidAmerican Holdings Company, is avidly pursuing full acquisition of PacifiCorp one of the largest Utilities Company in the Continental United States. Already a high net worth individual, Buffet at this point in time has a net worth of $44 billion. The sheer brilliance in this move lies in Buffet’s investment strategy: diversification. Berkshire Hathaway for years has witnessed compounded annual growth of 24% between 1965 to 2004, due to the fact that Berkshire Hathaway does not specialize in a particular sector, but rather is dominant a majority of sectors. Illustrative of this would be: Geico, Fruit of the Loom, and MiTek which dominant the Insurance, Apparel and Building sectors respectively. Buffet’s diversification strategy has truly reinforced his market power and will continually grow as time proceeds onward. Overall the dilemma presented in this story is whether there is great potential for Berkshire to leverage PacifiCorp in solidifying its business in the energy sector. 1. As outlined by the text, investor reaction is indicative that the acquisition of PacifiCorp would be value adding for both Berkshire as well as Scottish Power. The change in stock price is implicative that $43 billion is put to great use, as oppose to sitting in Cash and Cash equivalent section of Berkshire’s balance sheet. More importantly, because Berkshire already has an Energy Holding Company, PacifiCorp being a low-cost energy provider would enhance the company’s overall reach in terms of market share. Therefore there is the potential and high probability of synergy between MidAmerican Energy and PacifiCorp, resulting in the market perception that more value will be added to Berkshire overall. The text

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