Buffett spends $32 billion in buyout of Precision Castparts

Since Precision Castparts’ fiscal 2015 returns were solid but did not keep up with obligations, its funding deficit jumped.

For Berkshire, the deal came as the conglomerate has been sitting on a pile of cash to invest, almost $67 billion as of June 30. The universe of big companies that fit Buffett’s criteria tend to be manufacturing or industrial firms.

Buffet is known for his frugal lifestyle despite the bank balance and runs Berkshire from an average looking building in Omaha, Nebraska – his hometown.

Talking to reporters in the wake of the announcement Buffett suggested he thought the company, whose share price is down 30 per cent over the past year, is under-priced by the equity markets. In August 2014, when Precision’s stock traded at around $240 per share, Capital disclosed in an SEC filing that it owned 7.2 million shares, or 4.9 percent of the company’s outstanding stock.

“Those days are gone”, Lawrence Cunningham, a professor at George Washington University and author of the book Berkshire Beyond Buffett, said in an interview.

“His selection field is extremely limited”, Morgan said.

Berkshire’s core insurance companies include Geico and General Reinsurance.

Berkshire’s $235 a share price represents a 21% premium over its Friday closing price.

“We’ll probably borrow about $10 billion and use about $23 billion of our cash”, Buffett said. Mr Buffett said: “I’ve admired PCC’s operation for a long time”.

Buffett said the deal for Precision Castparts, a maker of fasteners and castings for the aerospace and industrial markets, would be the last elephant-sized deal for the foreseeable future, though he is open to smaller acquisitions.

KBW analyst Meyer Shields said Precision Castparts Corp. may be a cyclical business, but the complicated products it makes are hard for a competitor to match.

Boeing now sees India needing 1,740 new planes over the next 20 years, valued at $240 billion, up from its earlier 1,600-plane, $205 billion forecast.

PCC will continue to do business around the world under the Precision Castparts name and maintain its headquarters in Portland, Oregon.

The proposed acquisition, which remains subject to approval by Precision Castparts’ stockholders, also is the latest multibillion-dollar deal in a series of giant mergers involving U.S. companies this year.

The company’s stock was trading Monday at $231.05, up more than 19%.