S&P reviewing Berkshire Hathaway’s credit rating after deal

Buffetts Berkshire Hathaway is buying Precision Castparts Corp. for approximately $32.36 billion, the company announced, Monday, August 10, 2015.

S&P added that it, “will monitor developments related to this transaction and expect to update or resolve the CreditWatch listing within the next 90 days, following discussions with [Berkshire’s] management on prospective holding-company cash and leverage metrics, capital adequacy at the insurance companies, and consolidated earnings and cash-flow metrics”.

In Asia, shares mostly held firm on Tuesday in morning trade as China allowed its yuan to fall to levels last seen in 2012, a move that could provide a competitive boost to exports from the world’s second largest economy. Through July, cross-border M&A activity totaled $913.5 billion, up 23 percent from a year earlier, according to Thomson Reuters (TRI) data.

It would also give Berkshire ownership of 10 companies that standing alone could be part of the Fortune 500, plus 26.9 percent of Kraft Heinz.

“This is right up there at the top” of expensive deals, Buffett said.

The pan-European FTSEurofirst 300 index progressed 0.7 percent, but Britain’s FTSE 100 – which has a greater exposure towards commodity stocks than other European markets – fared less well, rising by only 0.3 percent.

Buffett told CNBC’s “Squawk Box” he made a bid for Precision during the Allen & Co. “They didn’t indicate they were particularly receptive, but they also indicated that they would listen”, Buffett said. That is not typical for how Berkshire operates.

Demand for new civilian aircraft is forecast to grow over the next several years. Among its notable customers are General Electric, Boeing and Airbus. Both companies are pushing suppliers to support significant increases in the production rates for their most popular planes.

Despite the rebound, oil is still down nearly 60% from its peak a year ago.

Precision seems to be another characteristic success for Buffett’s value investment style. One of his two investment managers, Todd Combs, bought shares in the company back in 2012, and Buffett clinched the deal in a meeting with PCP chief Mark Donegan in July 2015. Last year, almost three-quarters of its sales were to the aerospace industry.

Author and investor Jeff Matthews, who wrote “Warren Buffett’s Successor: Who It Is and Why It Matters“, said he doesn’t think Berkshire is getting a good price on Precision Castparts, so he’s not sure it will be good for shareholders, especially since Precision’s business is tied to the airline industry.