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Warren Buffet Case

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“Hortense GREGOIR Monday, November 17th 103300014

Warren E. Buffett, 2005

1. What is the possible meaning of the changes in stock price for Berkshire Hathaway and Scottish Power plc on the day of the acquisition announcement? Specifically, what does the $2.17-billion gain in Berkshire’s market value of equity imply about the intrinsic value of PacifiCorp? The changes of the stock price for Berkshire Hathaway and Scottish Power plc is due to the fact that the deal between these two companies created value, indeed it created value for the buyers and the sellers because for example thanks to this acquisition Berkshire is more diversified. Moreover, we can also say that the stock prices of Berkshire Hathaway and Scottish Power plc changed due to the variety of products produced by these two companies, for example Berkshire Hathaway has eight types of different products, from insurance to wholesale distributing. The fact that this deal creates value for both buyer and seller prove that the overall market approves it.

The $2.17 billion gain in Berkshire’s market value of equity implied that the intrinsic value of PacifiCorp was good. Indeed according to these calculations we can say that its value and its competitors ones are in the same range (see exhibit 9).
$2.17 billion312,18 million =6.95
This is what Berkshire is willing to pay for each share of PacifiCorp.
5.1 bilion312.18 million=16.30 6.95+16.30=$23.25 2. How well has Berkshire Hathaway performed? How well has it performed in the aggregate? What about its investment in MidAmerican Energy Holdings? During the last decades Berkshire Hathaway has performed very well and we can even say that it outperformed the market. Indeed, in 1977 the end closing share price was $107 whereas in May 2005 the price of its Class A shares reached…...

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