Berkshire Hathaway Buying Precision Castparts for About $32B

The company, which Berkshire Hathaway purchased for $37 billion in a transaction confirmed this morning, employs more than 2,900 people in the metro region.

The pace of corporate deal making has been surging this year as borrowing costs have stayed low, making it easier for companies to fund acquisitions.

The MSCI All-Country World index, which tracks shares in 45 nations, was up 0.78 percent. Berkshire’s stake in the combined company is worth almost $26 billion. The price of the company as multiple of the forward estimated earnings was traded at discount to the wider market since start of 2015.

And the 85-year-old Buffett wants to give Berkshire the strongest foundation possible for his investors and whoever eventually succeeds him.

In a statement today, Buffett said he had “admired PCC’s operation for a long time”.

Precision Castparts gets about 70 percent of its sales from the aerospace industry, which has experienced booming demand for commercial aircraft, leading Airbus Group and Boeing Co to boost production.

“We’re going to be in this business for 100 years, so it doesn’t really make any difference what oil and gas does in the next year”, Buffett said.

Copper rebounded from six-year lows and oil prices also rallied, helping push the S&P 500 energy index up 3.1 percent, its biggest daily percentage jump since January, and the materials index up 2.5 per cent. Disappointing economic data in China boosted hopes for additional stimulus from Beijing, lifting Chinese stocks. Yet generally the company is viewed as a well-managed enterprise. The company earned $US10 billion in revenues and net income of $US1.5 billion during the 2015 fiscal year.

On the other hand, Mark Donegan, Chairman and CEO of Precision Castparts said, “We are very pleased to be joining forces with Berkshire Hathaway“.

Joe Hixson, a spokesman for Precision, said it was unlikely the subsidiaries and their employees would feel an impact from the deal.

It’s not hard to find evidence for Precision Castparts’ high quality business and why Berkshire is comfortable to pay the price. Crude has recovered slightly but is still trading below $44 per barrel.

“From the Berkshire perspective, they’re getting a good company on sale”, KBW analyst Meyer Shields said. These positions are reported with a lag, so there’s no way to know whether portfolio managers ditched Precision Castparts during the intervening weeks.

The deal is subject to approval by PCC holders of the outstanding shares and by regulators, and is expected to be completed in the first quarter of 2016.