Warren Buffett’s Berkshire Hathaway Inc is in talks to buy Precision Castparts Corp, which makes equipment for the aerospace and energy industries, according to a person familiar with the matter.
The deal could be worth about US$30 billion and might be announced as soon as this week, the Wall Street Journal reported on Saturday, citing people familiar with the deal.
The price would represent a premium to Precision Castparts’ US$26.7 billion market value at Friday’s closing price of US$193.88 per share.
Berkshire could use almost half of its cash holdings to buy a 66-year-old company that has maintained consistent profit margins in recent years while growing through acquisitions.
Precision Castparts embodies qualities that Buffett seeks, with high barriers to entry by competitors, a business that demands a long-term outlook and a stock that has underperformed in recent years, said David Rolfe, who manages about US$11 billion including Berkshire shares at Wedgewood Partners Inc.
“That’s classic Buffett playbook,” Rolfe said. “He is picking up a very unique franchise that can continue to consolidate the industry.”
Precision Castparts, based in Portland, Oregon, uses advanced engineering technology to make metal industrial components for jet engines and power plants, as well as pipes for the oil and gas industry. It employs about 30,000 people and produced US$2.6 billion of pretax operating income on US$10 billion of revenue in its last fiscal year.
Precision Castparts last month said that it expects US$10 billion to US$10.4 billion of sales and an operating margin of about 27 percent in its current fiscal year, which ends in March next year. Last year, 70 percent of its sales were made to the aerospace industry, with another 17 percent going to the energy market.
“Forget about multi-quarter, this is a business that’s multi-decade in nature,” Rolfe said. “They have these incredibly long relationships with some of their customers. And people aren’t going to Fred’s moldings or Fred’s castings to get a little bit cheaper part on the inside of a jet engine.”
The company’s customers include General Electric Co, Boeing Co and Airbus Group SE.
Berkshire owned 3.1 percent of Precision Castparts as of March 31, according to Bloomberg data.
The planned purchase would be among Berkshire’s largest.
Buffett last year said that Berkshire’s future will be about buying big businesses and expanding them over time, rather than picking stocks.
He has also looked for the company’s biggest units, such as chemical additives maker Lubrizol Corp, to expand through their own acquisitions.
The Omaha, Nebraska-based company had US$66.6 billion in cash and equivalents across its businesses on June 30, up from US$40.7 billion three years earlier.
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