Warren Buffett’s biggest deal yet
Aeroplane engineer Precision Castparts is Warren Buffett's biggest buy, but it's no bargain.
Warren Buffett, 84, has just agreed the biggest deal of his career. His investment vehicle, Berkshire Hathaway, is buying engineer Precision Castparts for $37.2bn. Precision is best known for supplying the aerospace industry with parts, and it also sells to oil and gas firms. Berkshire will use $23bn of its $67bn cash pile and raise $10bn of cheap debt to finance the deal. Precision's shares jumped by 19%, having fallen by 20% this year.
What the commentators said
Boeing expects demand for commercial aircraft to grow steadily as more efficient designs are introduced and more people want to fly, noted Lex in the FT. It reckons 38,000 jets will need to be delivered in the next two decades; 21,000 are in service now. So this is "classic Buffett arbitrage" a buyer with a decades-long horizon exploiting a short-term dislocation. Still, it's hardly a bargain.
Stripping out debt, Buffett is paying 12 times forward earnings the S&P 500 is on ten times, said Grant. Berkshire is so huge now that finding deals big enough to "materially improve" its profits without overpaying for growth "is no easy task in this bull market".