The stock price of Precision Castparts (NYSE:PCP) increased more than 19% to $230.92 per share after announcing its transaction with Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B), the conglomerate controlled by billionaire investor Warren Buffett.
Precision Castparts is a manufacturer of complex metal components and products particularly for the aerospace and energy industries.
Transaction details
Berkshire Hathaway agreed to acquire Precision Castparts for $235 per share or $37.2 billion. The acquisition price represents a 21% premium to the closing price of Precision Castparts on Friday.
Nomura analyst Cliff Gallant told the Wall Street Journal on Saturday described Berkshire Hathaway’s acquisition of Precision Castparts as a “classic Berkshire move” since the stock price of the component manufacturer declined 17% in 12 months due to declining energy prices.
The board of directors of Precision Castparts unanimously approved the transaction, which still needs the approval of the majority of its shareholders. The deal is also subject to customary closing conditions and regulatory approvals.
Precision Castparts will continue its business operations around the world under its current name, and will maintain its headquarters in Portland Oregon after the closing of the transaction.
Buffett said Precision Castparts is a supplier of choice
In a statement, Buffett said, “I’ve admired PCC’s operation for a long time. For good reasons, it is the supplier of choice for the world’s aerospace industry, one of the largest sources of American exports.”
On the other hand, Mark Donegan, Chairman and CEO of Precision Castparts said, “We are very pleased to be joining forces with Berkshire Hathaway. We see a unique alignment between Warren’s management and investment philosophy and how we manage PCC for the long-term.”
Donegan added that Precision Castparts “will be exceptionally well-positioned” to support the needs of its customers in the future as part of Berkshire Hathaway.
“This transaction offers compelling and immediate value for our shareholders, and allows PCC’s employees to continue to operate in the same manner that has generated many years of exceptional service and performance to our customers,” said Donegan.
Precision Castparts is the largest takeover deals of Berkshire Hathaway. Buffett has been building his conglomerate through acquisitions in recent years. The conglomerate purchased 77% of Burlington Northern Santa Fe railroad that it did not yet own for $26 billion in 2010. Berkshire Hathaway acquired Lubrizol for $9 billion in 2011.
