In his largest acquisition ever, Warren Buffett agreed Monday to pay $37.2 billion for Precision Castparts Corp., continuing a string of mega-deals that have taken his Berkshire Hathaway conglomerate away from its roots in the insurance business.
Precision Castparts makes parts for Boeing, Airbus, GE and other industrial companies. Last year, nearly three-quarters of its sales were to the aerospace industry.
At $235 per share, Buffett will pay a premium of 21% over PCC’s closing price on Friday. Berkshire is already one of the company’s largest shareholders, with a 3% stake.
“I’ve admired PCC’s operation for a long time,” Buffett said in a news release. “For good reasons, it is the supplier of choice for the world’s aerospace industry, one of the largest sources of American exports.”
The legendary investor admitted he was paying a high price for PCC, telling CNBC, “In terms of price-earnings multiple going in, this is right there at the top.”
“I’m not crazy about paying $30 billion for a $1.5 billion earnings stream of a cyclical company supplying airplane makers,” Jeff Matthews, a principal at hedge fund Ram Partners and author of a book about Buffett, told Reuters. “I’d keep the $30 billion and wait for the next crisis.”
But The Wall Street Journal said Buffett is betting that “airlines will continue driving a boom in aerospace manufacturing. The aerospace industry is undergoing a wave of consolidation as airplane makers boost output after winning orders for thousands of new jets.”
Berkshire’s previous largest deal was the $26 billion purchase in 2010 of the 77% of BNSF Railway Co. it didn’t already own. In 2013, it paid $12 billion to acquire about half of H.J. Heinz and now owns 27% of Kraft Heinz, the company formed by the merger of Kraft and Heinz.
Precision Castparts has grown rapidly through a series of acquisitions but according to the WSJ, its stock price has been weighed down by a series of production problems, destocking by one of its largest customers and the exposure of its pipeline business to the oil-and-gas sector.
The company’s stock was trading Monday at $231.05, up more than 19%.
Data curated by findthecompany.com