The Oracle of Omaha: High Stakes and a Big Acquisition

In 2015, Berkshire Hathaway made the largest deal in its history. Under the guidance of chair and CEO Warren Buffett, the conglomerate acquired Precision Castparts Corp. (PCC) for $235 per share and PCC’s debt — a combined total of $37.2 billion.

Buffett is famous for the returns his choices generate and is considered by many to be one of the most successful investors of all time. Under his leadership, Berkshire Hathaway has regularly outperformed the Standard & Poor’s 500 index in total return, but in 2015, that success had been in decline.

The announcement of the deal seemed to cow investors, and Berkshire Hathaway’s stock price fell 1.1 percent, which amounted to more than $4 billion. Conventional forecasting models would say that the company overpaid for the acquisition.

That said, Buffett has prodigious talent for seeing value that others miss.

PCC is a manufacturer of industrial goods, and a bulk of its business is in supplying parts to the aerospace industry. It’s a strong brand that promises to remain so: With consumer travel on the rise, the airline industry is thriving, and companies are investing in refitting their planes for environmental sustainability and fuel efficiency. Meanwhile, the other lines of PCC’s business enjoy a healthily diversified customer base.

Time will tell whether the deal will pay off. What we can be sure of now: High stakes come with high risk, and Buffett is not one to shy away from bold deals.

The preceding is adapted from Darden Professor and Dean Emeritus Robert F. Bruner’s article “Is This Investment a Rare Misstep From the ‘Oracle of Omaha’?” which appeared in the 9 April 2017 issue of The Washington Post as part of the Darden School of Business/Washington Post Case in Point” series.

The article is based on the case Warren E. Buffett, 2015 (Darden Business Publishing), by Robert F. Bruner and Jake DuBois (MBA ’15).

About the Faculty

Robert F. Bruner

Bruner is an expert on mergers and acquisitions. He’s written two books on the subject, Deals from Hell: M&A Lessons That Rise Above the Ashes and Applied Mergers and Acquisitions, which have helped countless students and business people deal with the complexity of mergers and acquisitions. His business expertise is... Learn More