Warren Buffett’s Berkshire Hathaway buys Precision Castparts

Warren Buffett’s Berkshire Hathaway on Monday agreed to buy Precision Castparts for about 37.2 billion U.S. dollars, which would be the conglomerate’s largest takeover ever.

Buffett told CNBC’s “Squawk Box” he made a bid for Precision during the Allen & Co. And this plan was vital to Buffett, who said he would never have gone ahead with the deal if he was not “100 percent sure” that Donegan would be in charge for a long time to come. “Frankly, most of the food companies sell at prices that it would be very hard for us to make a deal even if we had done all the work needed at Kraft Heinz”. Precision Castparts’ shares jumped as much as 19.4 percent to US$231.47, while Berkshire Class B shares dipped 0.2 percent to US$143.27.

Berkshire already owned 3 per cent of the company, and is its largest shareholder.

Buffett searches for deals of this size to meaningfully improve profits at Berkshire and invest the $66.6 billion cash the company had on hand. Berkshire’s was down slightly. The company’s market value is $354 billion, and its businesses include Burlington Northern Santa Fe railroad and Fruit of the Loom underwear.

Buffett, though, isn’t the only major investor to capitalize on Precision’s rough year on the market. “I had never really heard of the company before that”.

PCC had revenue of more than 10 billion in 2014.

Oregon-based Precision Castparts Corporation (PCC) was founded in 1953 and builds parts used in the aerospace and energy industries with a specialization in jet engine components. But over the long-term, energy prices do not matter in terms of this deal.

Berkshire Hathaway will pay 235 per share in cash for all PCC’s outstanding shares making it a wholly owned subsidiary. “Mostly you see it pronounced in the cyclical sectors… anything tied to China and the commodities’ complex”, said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.

U.S. stocks surged Monday, with the Dow Jones Industrial Average snapping a seven-session losing streak, as a Berkshire deal cheered Wall Street sentiment.

Following this monster acquisition, Buffett said he would probably be buying a few smaller companies in the next six months and was in negotiations.

Last week, Berkshire reported earnings that missed expectations after the company saw underwriting losses in its insurance unit during the second quarter.