Precision Castparts Sold To Warren Buffetts Berkshire Hathaway For 37 Billion

Dated: 08/11/2015

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Berkshire Hathaway confirmed Monday it's buying Oregon's second-biggest company, Precision Castparts, in the biggest deal in the history of the state.


Warren Buffett's investment firm will pay $235 a share in cash for the Portland industrial company, a 21 percent premium over Friday's closing price. The deal is worth $37.2 billion altogether, including Precision Castparts' existing debt.


"I've admired PCC's operation for a long time," Buffett said in a written statement. "For good reasons, it is the supplier of choice for the world's aerospace industry, one of the largest sources of American exports."


The companies said they plan to close the deal early next year and retain Precision Castparts' name and Portland headquarters. Buffett said CEO Mark Donegan will continue to run the business.


Precision Castparts has more than 30,000 employees, including 3,000 in Oregon. It has a collection of factories along Johnson Creek near outer Southeast Portland and an operation in Redmond. The business operates from nondescript headquarters in Johns Landing.


The deal isn't likely to have a huge impact on Oregon's economy – Precision Castparts is 62 years old, meaning there isn't a small team of local founders waiting to cash out. Instead, the company's largest shareholders are out-of-state institutional funds: the five largest control about one third of the Portland company's stock.


There's little apparent downside for the state, though. Unlike other big investors, Buffett buys companies because he likes the way they're run, not to shake them up. Historically, he's more likely to reinforce and reinvest in an existing strategy than shake up a business.


"We expect operations to continue as they have, being headquartered in Portland under the existing management team," a Precision Castparts spokesman said. "Berkshire Hathaway has a history of empowering management teams to run their businesses independently. We expect to continue to make acquisitions and strategic investments to support the growth of the business."


Still, it's a seminal event for Oregon industry. Precision Castparts is one of three Oregon businesses on the Fortune 500 (the others are Nike and Lithia Motors.)


Precision Castparts history Founded: 1953, in Portland Headquarters: 4650S.W.Macadam Ave., Portland Employees: 30,100 as of March 29, and 3,000 in Oregon. That includes 9,450 in forged products, 12,550 in airframe products and 150 in corporate functions. One-fifth of its employees are unionized. Revenue(fiscal 2015): $10.0 billion, up from $9.5 billion the prior year. Profits: $1.53 billion.


Founded in 1953, Precision Castparts makes metal parts for airplanes, energy companies and heavy industry. It boasts on its website that nearly every airplane flying includes a Precision-made part, and aerospace accounted for more than 70 percent of its nearly $10 billion in revenue last year.


The deal had been widely expected after The Wall Street Journal reported Saturday that the two sides were close to an agreement.


Precision Castparts' stock leaped $37.12 Monday to $230.97 on news of the deal.


On CNBC early Monday, Buffett said a Berkshire Hathaway portfolio manager named Todd Combs introduced him to Precision Castparts when he added it to Berkshire's portfolio about three years ago.


Berkshire bid for the Portland company last month at the Allen & Co. Sun Valley conference, Buffett said.


Shares in the Portland company were down 20 percent so far this year – primarily because of a decline in business from its customers in the energy industry. Buffett is already heavily invested in that sector – among other assets, Berkshire Hathaway owns PacifiCorp, the electric utility serving much of Oregon and parts of five other western states.


And on CNBC early Monday, Buffett said the energy slide in no way diminished his interest in Precision Castparts.


"We're going to be in this business for 100 years, so it doesn't really make any difference what oil and gas does in the next year," he said.


For Berkshire Hathaway, Monday's acquisition is typical in all ways but price. Buffett likes big, established industrial customers with a commanding market position. It's disinclined to high-tech ("if there's lots of technology, we won't understand it"), Buffett told investors last winter.


In addition to the biggest deal in Oregon history, it's also Warren Buffett's biggest acquisition ever (Berkshire paid $26 billion for the BNSF railway in 2009.) But the big price tag isn't a surprise – Berkshire had more than $66 billion in cash at the end of June, and Buffett declared in February he was hunting for a big takeover.


Berkshire will borrow about $10 billion to finance the Precision Castparts deal, Buffett told CNBC, and isn't likely to consider another big deal for at least a year.


"This takes us out of the market for an elephant," he said.


"We'll be left with over $40 billion probably of cash when we get all through."


Precision Castparts built its own business through a string of acquisitions dating back to its early days, bolstering its share of the aerospace industry by buying complementary businesses and buying pieces of its own supply chain.


CEO Donegan, who has run the company since 2002, is the sixth-best-paid chief executive in the Northwest, according to The Seattle Times' annual ranking. It valued his compensation last year at $9.7 million.


Additionally, Donegan owns more than 226,000 shares in the company, worth $53.2 million under terms of Buffett's offer, $9 million more than at Friday's closing price. He has additional stock options valued at about $4 million that vest immediately when the deal closes.


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Mark Ross

For Mark Ross, founder of Ross NW Real Estate and professional real estate broker, real estate has always been the career of choice. During his 25+ years in the industry, Mark has gained experience in....

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