Premium Essay

Berkshire Post Case

In: Business and Management

Submitted By CamDerr2
Words 748
Pages 3
1. What is the possible meaning of the changes in stock price for Berkshire Hathaway and Scottish Power on the day of the acquisition announcement: Specifically, what does the $2.55 billion gin in Berkshire market value of equity imply about the intrinsic value of PacifiCorp?
The possible meaning of the change of the stock is that the facts that are created in the deal had a positive effect on both the buyers ( BRK) and the sellers which are the mother company of Pacific( Scottish power),
To find the 2.55 Billion gain of BRK on the market value equity that the intrinsic value of Pacific was good because it was within the range demonstrated in the calculations I have done:- $2.55 billion / 312.8 million = $8.17 (Berkshire is willing to pay this premium for each share of PacifiCorp)

5.1 billion / 312.18 million = $16.30 per share of PacifiCorp

$8.17 + 16.30 = $24.47
(all information taken from chart 9)
2. Based upon the multiples for comparable regulated utilities, what is the range of possible values for PacifiCorp? What questions might you have about this range?
We find the range of possible values for PacifiCorp in chart 10:-

A. Revenue median of $6.252 Billion, mean of $6.584 Billion.

B. EBIT median of $8.775 Billion, mean of $9.289 Billion.

C- EBITDA median of $9.023 Billion, mean of $9.076 Billion.

D- Net Income median of $7.596 Billion, mean of $7.553 Billion.

E- EPS median of $4.277 Billion, and a mean of $4.308 Billion.

F- Book value median of $5.904 Billion, mean of $5.678 Billion.
The questions we may have on PacifiCorp is about the EBITDA and the NI comparing the value of them.

3. Assess the bid for PacifiCorp. How does it compare with the firm’s intrinsic value? As an alternative how does the value from a DCF approach differ from say balance sheet methods, income sheet methods (multiples), goodwill based methods, or value…...

Similar Documents

Premium Essay

Berkshire Instruments Casestudy

...Berkshire Instruments Cost of Capital A1 Hansen, the newly appointed vice president of finance of Berkshire Instruments, was eager to talk to his investment banker about future financing for the firm. One of Al's first assignments was to determine the firm's cost of capital. In assessing the weights to use in computing the cost of capital, he examined the current balance sheet, presented in Figure 1. In their discussion, Al and his investment banker determined that the current mix in the capital. structure was very close to optimal and that Berkshire Instruments should continue with it in the future. Of some concern was the appropriate cost to assign to each of the elements in the capital structure. Al Hansen. requested that his administrative assistant provide data on what the cost to issue debt and preferred stock had been in the past. .The information is provided in Figure 2. When Al got the data, he felt he was making real progress toward determining the cost of capital for the firm. However, his investment banker indicated that he was going about the process in an incorrect manner. The important issue is the current cost of the funds, not the historical cost. The banker suggested that a comparable firm in the industry, in terms of size and bond rating (Baa), Rollins Instruments, had issued bonds a year and a half ago for 9.3 percent interest at a $1,000 par value, and the bonds were currently selling for $890. The bonds had 20 years remaining to maturity.......

Words: 1670 - Pages: 7

Premium Essay

Berkshire Hathaway Analysis

...Berkshire Hathaway Summary Facts about the Firm Berkshire Hathaway is an American multinational company based out of Omaha, Nebraska, USA & does not resemble the original company that Buffett had bought during the 1960’s. As of 2008, it was active in a variety of sectors, including insurance, regulated utilities & retailing. It is a holding company that manages a number of subsidiary companies belonging to the companies in these variety sectors. In 2008, the revenues of the conglomerate had become $81.7 bn. Warren Buffett has been at the helm of affairs since the inception & still remains the current Chairman and CEO. Charlie Munger, who is his best advisor and has been attached since early days to Buffett is the current Vice-Chairman. Analysis After gaining some experience in investing in firms, his first moderately successful venture being the Dempster Mill Manufacturing, Buffett bought Berkshire Hathaway, a textile mill which he was tracking from some years and then started looking out for other investing opportunities from the profits he made. His target over the years was to invest and acquire Insurance firms which would give him the extra cash needed to invest elsewhere. He carried on a spate of acquisitions over the years using the below acquisition criteria: - * Large purchases (at least $75 million of pre-tax earnings) * Demonstrated consistent earning power (sustainability of the business) * Businesses earning good returns on equity...

Words: 860 - Pages: 4

Premium Essay

Berkshire Hathaway

...Presentation "Greetings, introducing names", we are going to present you today how the Berkshire Hathaway's acquisition criteria, operating principled and incentives work together to enforce hte values of responsibility and trust, which the Berkshire Hathaway model is predicated on. Our presentation outline includes the company's history; its unique approach in corporate governance; the secret of success in terms of acquisition using human resources wisely and effectively; the company's culture and conclusions. Initially, Berkshire Hathaway is one of the largest corporations in the world, which has significant minority hildings in American Express, M&T Bank, Procter & Gamble and IBM. It is known for its control by the investor Warren Buffet, who is the company's chairman and CEO. Berkshire Hathaway traces its roots to a textile manufacturing company established by Oliver Chace in 1839 and its business units employ over 250,000 employees. Being built on a model based on centralization of capital allocation decisions within corporate headquarters along with extreme decentralization of operating decisions within individual business units, Berkshire Hathaway showed an absolutely unique approach in corporate governance that works effectively. Despite the company has a considerable number of employees – over 250,000 individuals – managers, who oversee each unit, hold complete discretion over operating and capital decisions within their businesses, without......

Words: 1007 - Pages: 5

Premium Essay

Case Study the Machinest/ Post Traumatic Stress Disorder/ Insomnia

...Abnormal psychology is the study of abnormal behavior, thoughts and emotions. There are many people with mental disorders that never get treated. It is very important to make correct diagnoses when diagnosing a patient. Accurate diagnosing will insure that the individual is receiving the best treatment possible. The earlier mental illnesses are detected they easier they are to treat. It should always be ones priority to function as normal as possible and get back on track. Educating people on their disorder and treatment options will give them a better understanding of their condition and what they can do to stay healthy and recover to normal. I am going to be writing a psychological case study on Trevor Reznik from the Machinist. I will be giving a brief background on Trevor as well as discussing his behavior and symptoms. I will base my diagnosis of his symptoms and behavior with accordance to the DSM-IV criteria and multi-axis diagnosis. I will also be recommending treatment and recovery options. Trevor Reznik is a 29 year old man from Seattle Washington. He moved to Houston 5 years ago after earning a degree in machinery. Trevor is a Machinist at Skilled Craftsmen of Texas. He says he doesn't care much for the trade but the pay is alright. He states that he isn't very well at keeping in touch with family these days. He grew up in a single family home and his father died when he was a young boy. There is no history of medical or mental disorders to Trevor lihis......

Words: 1591 - Pages: 7

Premium Essay

Berkshire Hathaway and Scottish Power Plc

...Question 1: What is your interpretation of changes in stock prices of Berkshire Hathaway and Scottish Power Plc on the day of acquisition announcement? Answer: Deal announcement cause increment in share price of both Berkshire Hathaway and Scottish Power. The possible reason could be that the investor saw this deal as win-win situation for both the companies. The deal created value for both the company. Berkshire became more diversified and Scottish Power got good value from the deal. A possible reason for increase in share price of Scottish Power may be due to the fact investors saw this acquisition as good sign for Scottish Power and the deal taken as proof that Scottish power is in good condition. It is possible that the investors perceived potential synergies between PacifiCorp and MidAmerican. Question 2: Is the Berkshire's offer for Pacfic Corp was in line with the range of peer firm valuations? Answer: From Exhibit 10, we are able to see the following value for PacificCorp MV Equity as Multiple of: | Average Value | EPS | Book Value | | |   | | 4,277 | 5,904 | 5090.5 | 4,308 | 5,678 | 4993 | In the case it is stated that the deal will take around 12 to 18 months to close. We will now calculate the PV of the deal. Risk free return rate as per case is 5.76% Beta for Berkshire is 0.75 The long term market return is 10.5% Cost of equity for Berkshire = 5.76+0.75(10.5-5.76) =9.32 % Using......

Words: 294 - Pages: 2

Premium Essay

Post It

...Competitor Analysis 3. Consumer Analysis 3.1 Consumer Trend 3.2 Consumer Needs And Wants 3.3 Consumer Behaviour 4. Post-it Analysis 4.1 Target Segment 4.2 Distribution Characteristics 4.3 Business Performance 4.4 Business Strategy – 5Ps 4.5 SWOT Analysis 5. Proposed Marketing Plan 5.1 Target Segment 5.2 Positioning 5.3 Strategy 5.4 Conclusion 1. Market Analysis The repositionable notes market is made up of paper or tabs with adhesive, which allows the product to be stuck on surfaces and moved, without leaving residue. They are also known as ‘sticky notes’ and the idea was first conceived by 3M innovators. Post-it, the original inventor of ‘sticky notes’ have seen other competitors entering the market, yet having little success in toppling Post-it as the market leader. This is especially so in Singapore, where most of the brands shy away from competing head-on with Post-it, by differentiating their products. 1.1 Market Environment 1.1.1 Technology The ease of accessing wireless networks via Wireless@SG, since its introduction in 2006, has led to a surge in consumers switching to 3G phones. The implications of this on the repositionable notes market is that gadgets like phones are increasingly being used as a substitute in place of sticky notes, in reminding people of certain events or things. Instead of physically placing a post-it on the desk, people choose to set reminders on their phones, with alarms. People also choose to send short......

Words: 4117 - Pages: 17

Premium Essay

Berkshire Hathaway

...Individual Assignment BERKSHIRE HATHAWAY Assignment Report Submitted by: Sudipt Tewari | G13051 | Case Summary: Berkshire Hathaway, Inc.’s chairman and CEO Warren Buffett, is the world's third richest man. He invested in Berkshire Hathaway in 1962, and by 1963, Buffett was Berkshire’s largest shareholder. Buffett started purchasing other businesses, which were primarily insurance companies, with profits from the declining original textile business. In 1985, the original textile business was shut down and Berkshire Hathaway diversified into higher margin businesses. Now, Berkshire Hathaway is active in a variety of sectors, including insurance, regulated utilities and retailing. One of the companies that Berkshire Hathaway holds is GIECO (Government Employees Insurance Company). In 1995, GIECO was wholly owned by Berkshire Hathaway. By 2005, its market share was increased from 1.9 percent to 6.1 percent with underwriting revenues of additional $590 million in cash from operating earnings in spite of decline in insurance industry. Another major company under Berkshire Hathaway is Nebraska Furniture Mart. It is a large furniture store, which holds NFM Mega Mart and Homemakers Furniture. Warren Buffett utilizes a constant strategy to manage these companies including Berkshire Hathaway by holding shares for a long time. Berkshire Hathaway does not pay any dividends to the shareholders but reinvests surplus instead to maximize the value of the company. Under this......

Words: 800 - Pages: 4

Premium Essay

Berkshire Hathaway

...Berkshire Hathaway Berkshire Hathaway is a holdings company operated by Warren Buffett and Charles Munger. The company was founded in the 1800’s as a textile mill, and through a series of mergers became known as Berkshire Hathaway. Buffett took control of the company in the 1960’s and transformed it from a failing textile mill into a very successful holdings company. Berkshire Hathaway’s main investments are insurance companies such as GEICO, financial institutions such as Wells Fargo, goods companies such as Coca-Cola, and newspapers such as The Washington Post. The company’s financial situation is very strong, with increasing assets, equity, and revenue. The company has several large competitors such as The Allstate Corporation and BlackRock, Inc., as well as many others. However, Berkshire constantly outperforms not only its competitors, but also the market. Berkshire Hathaway is a holdings company that owns businesses in a variety of business activities. The company was founded in 1839 as a textile mill known as The Valley Falls Company and through a series of mergers became known as Berkshire Hathaway. Warren Buffett, the world’s greatest investor, started buying stock in the company in 1962 (Finkle 2010). By the mid 1960’s, Buffett owned enough of the company to change the management and basically take control of the company. Buffett realized that the textile industry was in a decline, so he used the company as an investment vehicle in addition to its textile...

Words: 1859 - Pages: 8

Premium Essay

3m Post-It Notes Case Study

...Post it Notes – Case Study Questions Question 1 In the development of this product, how did the creative thinking process work? Describe what took place in each of the four steps. . The Post-It Notes case has clearly illustrated the 4 phases in creativity development and each step has demonstrated by the inventor of Post-It Notes as described below: * Background or knowledge accumulation This phase was demonstrated by Art Fry who is the inventor of Post-It Notes whereby he recalled about the adhesive invented by Dr. Spencer Silver from a seminar he attended in the past. He approaches the R&D department to gather a background information and knowledge about adhesives that developed by Dr. Spencer Silver. * The mind incubation process This incubation process occurs while Art Fry singing in the church choir. Most of the time, the bookmark kept failing out of his hymnal, causing him to lose his page while performing. This prompted him to find a solution or something that could adhere to the page but not tear it. He went on to explore the possibility with the helps from R&D team and managed to find a low-tack adhesive that turn out to be a perfect solution to prevent the bookmark falling out. * The idea experience As Fry’s idea of applying the low-tack adhesive on the bookmark was proven an effective solution, he begin to realize that the same concept could possible turn into a new product. * Evaluation and Implementation This phase was......

Words: 725 - Pages: 3

Premium Essay

Examining Berkshire Hathaways Purchase of Geico

...Berkshire Hathaway and GEICO Insurance © 2001 Tim Glowa White Paper: Examining Berkshire Hathaway’s 1995 Purchase of GEICO Insurance Tim Glowa Tim@Glowa.ca September 12, 2001 © 2001 Tim Glowa September 12, 2001 -1- Berkshire Hathaway and GEICO Insurance Table of contents © 2001 Tim Glowa Executive Summary.................................................................................................... 3 Introduction................................................................................................................. 4 Review of the case: Berkshire Hathaway purchasing GEICO.................................... 4 Strategic Outcome....................................................................................................... 7 Finance........................................................................................................................ 7 Time Value of Money................................................................................................. 8 Assessment of the GEICO purchase ........................................................................... 8 Time value of money ................................................................................................ 11 An examination of the GEICO acquisition in hindsight........................................... 13 Limitations of Discounted Cash Flow ...................................................................... 15 Limitations of this Analysis ...

Words: 5107 - Pages: 21

Premium Essay

Berkshire Hathway

...Berkshire Hathaway is an American multinational conglomerate holding company. It was founded in 1888 by Horatio Hathaway. At this time, the company was named the Hathaway Manufacturing Company. When the merger of Berkshire Fine Spinning Associates and the Hathaway Manufacturing Company took place it was named Berkshire Hathaway. Before the combining of these companies, Hathaway Manufacturing Company was its own successful business until World War I caused it to suffer. The combination that created Berkshire Hathaway had fifteen plants. These plants employed over twelve thousand people and represented one hundred and twenty million dollars in revenues. In 1962, Warren Buffett, noticed stock price direction. Buffett brought great importance to the company because of the interest he showed. He bought enough shares that the company decided to buy back his shares for slightly less than pleased by him. This caused Buffett to buy even more stocks to take control of the company. The effort shown by Buffett resulted in him to gain control of most of the company. It was then brought to a new level, thanks to Buffett, as he expanded the company into the insurance industry, utilities and energy, finance and financial products and flight services. The first new investments included National Indemnity Company and the Government Employees Insurance Company (GEICO). These companies formed the foundation of its insurance companies, and are a major source of the company's capital.......

Words: 1956 - Pages: 8

Premium Essay

Berkshire Case

...expense and amortization * Consider intangibles and cost of capital * Managers’ interest will be aligned with those of shareholders + Objectivity * A reasonable choice. Question 2: Evaluate the Berkshire Industries’ new incentive plan. What changes would you recommend, if any? Elements of the new incentive plan: 1. Target based on economic profit Managers were compensated directly for improving their entity’s economic profits. Economic profit = adjusted Net operating profit after taxes – (capital * cost of capital) pros | Cons | recommendations | Address suboptimization problemIt involves capitalization of advertising expense and amortizationManagers are motivated to invest in projects those internal rates of return higher than or at least equal to, the corporate cost of capital.  * | Still focuses on the past, while economic income reflects changes in future cash flow potentials => still likely to be a poor indicator of value changes for company.  Be affected by controllability problemsEx: the economic profit system was not applied to Spirits Division as it was not responsive to changing market conditions. Create understandability problems. measures can be complex and are not as widely familiar.Ex: a number of managers in Berkshire seemed not to understand how the economic profit measure was computed.Expensiverequire assistance from consultants , management development and training time. | More training courses for managersCombine with......

Words: 976 - Pages: 4

Premium Essay

Case Berkshire Industries Plc

...Berkshire Industries PLC Berkshire Industries, PLC is a company that consisted of four different divisions. It is a decentralized company, where each department had a considerable degree of autonomy. Departments were "beer", "spirits" (alcohol), "soft" and "snacks". The company's initial public offering after the primary weight of the performance of the EPS was in (earnings per share = Profit / average number of shares for the period). EPS, however, was not an absolute truth, and was associated with a number of concerns. Berkshire was financially strong and growing company. Although the EPS had been growing steadily throughout the last decade, the company's shareholders were not benefiting from the company's share prices had risen only slightly during that period. At the request of the Board and CEO, William Embleton Berkshire began to look for a new performance measurement system and incentive system. He ended up in the CLA's (Corey, Langfeldt and Associates) to provide a solution. The new system, however, was complex and difficult to understand. One problem was that it caused considerable confusion among the leaders. Although due to the new system, there had been arranged a lot of training in connection with, senior management, despite all the prejudices of the leaders do not "got the hang of" how the economic return would have been used as gauges. Some leaders even continued using the old system. Personally, I would maybe try a few in advance with the leaders of......

Words: 544 - Pages: 3

Premium Essay

Berkshire Threaded Fasteners Company Solution

...Colin Drury, Management and Cost Accounting – Berkshire Threaded Fasteners Company Berkshire Threaded Fasteners Company Professor John Shank, The Amos Tuck School of Business Administration Dartmouth College This case is reprinted from Cases in Cost Management, Shank, J. K., 1996, South Western Publishing Company. The case was adapted by Professor John Shank, with permission from the author from an earlier case written by J. P. Culliton, Harvard Business School. The case was originally set in the mid 1970's. In February 2000, Brandon Cook was appointed general manager by Joe Magers, president of Berkshire Threaded Fasteners Company. Cook age 56, had wide executive experience in manufacturing products similar to those of Berkshire. The appointment of Cook resulted from management problems arising from the death of John Magers, founder and until his death in early 1999, president of the company. Joe Magers had only four years experience with the company and in early 2000 he was 34 years old. His father had hoped to train Joe over a 10-year period, but the father's untimely death had cut this seasoning period short. The younger Magers became president after his father's death, and he had exercised full control until he hired Cook. Joe Magers knew that he had made several poor decisions during 1999 and that the morale of the organization had suffered, apparently through lack of confidence in him. When he received the income statement for 1999 (Exhibit 1), the......

Words: 1918 - Pages: 8

Premium Essay

Berkshire Partners: Bidding for Carters

...9-205-058 REV: AUGUST 19, 2011 MALCOLM BAKER JAMES QUINN Ber rkshire Partne Bid e ers: dding f Cart for ter’s In the spring of 2001, Bost o ton-based pri ivate equity firm Berkshi Partners w consider ire was ring a levera aged buyout (LBO) of the William Cart Co., a lead ter ding producer of infant, ba r aby, and child dren’s appar in the Un rel nited States. Berkshire Par B rtners, which had extensi h ive experienc investing i the ce in retail and manufac cturing sector was initia drawn to Carter’s bec rs, ally o cause of the s strong brand name ngth of the s the co ompany had developed during its 136 d 6-year history as well as for the stren y, s senior mana agement team (See Exhibit 1 for a profil of Berkshir m. t le re.) To investigate the option of a potential LBO, Berkshir assembled a five-memb team, to b led o t f L re d ber be by managing dire ectors Ross Jo ones and Bra adley Bloom and senior a associate Mich hael Ascione (See e. Exhib 2 for biogr bit raphical sketc ches.) The tea would hav less than e am ve eight weeks to move throu all o ugh the stages of a Gol ldman Sachs-led auction— —from initial r research and due diligenc to valuation and ce bid st trategy. In addition to running the auction and thereby serv ving as Carter agent, Go r’s oldman Sachs (GS) s would be offering “staple-on” financing. Under this arr d g rangement, th winning b he bidder would......

Words: 6238 - Pages: 25

MTV Splitsvilla X | Nova Launcher Prime pro | Turn-based