Berkshire Hathaway Inc. is a famous company which also involves in many different business segments. It was originally operated as a cotton manufacturing company. In 1965, Warren Buffet declared to take over it and he became the chairman and CEO of Berkshire Hathaway. Since then, this company started to be well known by the world.
Market value implication
On May 24, 2005, Buffet announced that MidAmerican Energy Holding Company, a subsidiary of Berkshire Hathaway would acquire PacifiCorp which is an electric utility company. He decided to use $5.1 billion in cash and $4.3 billion in liabilities and preferred stock to acquire it. According to the data, on the day of announcement, Berkshire Hathaway’s Class …show more content…
Berkshire Hathaway took a major stake in MidAmerican Energy Holdings in 2000. We can see from the exhibit 6 of the case, the net earnings of MidAmerican Energy Holdings had increased 76% in 2001 and 165% in 2002. We also found the statistic that the earnings per share of MidAmerican Energy Holdings were increased from $2.6 in 2000 to $20 in 2012. From this aspect, we can conclude that the investment in MidAmerican Energy Holdings performs well.
“Big Four” is the investments of Berkshire which contains American Express, Coca-Cola, Gillette and Wells Fargo. As the data provided in exhibit 3 of the case, we could calculate the compound annual growth rate to measure the performance of “Big Four”. At first we pick up the cost and market value of these four. We get the ending value of “Big Four is $24,681 and the beginning value is $3,830. With the number of 12.5 years, we get the annual growth rate of the “Big Four” is 16.07% which is larger than 10.5%, the annual average total return on all large stocks at that period. Through this we could find that the performance of “Big Four” is quite good. (The formula of compound annual growth rate is show in Table 4.
Buffett’s investment philosophy
Berkshire Hathaway’s shareholders would be willing to endorse this acquisition.
Acquiring an electric utility company will diversify the whole investment basket of Berkshire Hathaway. From the advantage