Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B), the holding company controlled by Warren Buffett is negotiating to acquire Precision Castparts (NYSE:PCP), according to the Wall Street Journal based on information familiar with the situation.
Precision Castparts is a manufacturer of complex metal components and products particularly for the aerospace and energy industries. The company uses advanced engineering technology to produce metal industrial components for jet engines and power plants including pipes for the oil and gas industry. It has approximately 30,000 employees.
According to the sources, Berkshire Hathaway is close to reaching an agreement to purchase Precision Castparts, which has a market value of $26.7 billion based on its closing price on Friday. The acquisition price could be more than $30 billion.
The persons suggested that Berkshire Hathaway and Precision Castparts might announce the transaction as early as next week.
A classic move for Berkshire Hathaway
Berkshire Hathaway is the largest shareholder of Precision Castparts with 3% stake as of March 30. Buffett had been looking for a large acquisition for his company, but often sees limited targets with attractive prices.
Nomura analyst Cliff Gallant commented that Precision Castparts seemed the “type of business that would fit well” in Berkshire Hathaway’s portfolio of companies. He also noted that the timing of the potential acquisition of Precision Castparts when its stock price declined was a “classic Berkshire move.”
The biggest deal made by Berkshire Hathaway was in 2010 when it acquired 77% of Burlington Northern Santa Fe railroad that it didn’t yet own for $26 billion. Precision Castparts would become its largest takeover deal.
Berkshire Hathaway recently partnered with 3G Capital to pursue transactions in the food industry including the acquisition of H.J. Heinz Company for $23 billion in 2013. Heinz merged with Kraft Foods Group in July.
Berkshire Hathaway second quarter profit missed estimates
Yesterday, Berkshire Hathaway released its financial results for the second quarter. Its net income declined 37% to $4.01 billion or $2,442 per share from $6.4 billion or $3,889 per share in the same period a year ago.
The company said its operating earnings were $2,367 per share excluding some investment results. Analysts had an average estimate of $3,038 per share.
Berkshire Hathaway missed the estimate of analysts because the company incurred underwriting loss at its insurance segment due to higher claims costs. Its insurance segment recorded an underwriting loss of $38 million.