Berkshire Hathaway

Berkshire Hathaway

  • Submitted By: kukuku
  • Date Submitted: 03/13/2011 8:51 AM
  • Category: Business
  • Words: 1567
  • Page: 7
  • Views: 594

Berkshire Hathaway was a cotton manufacturing company incorporated in 1889 and once became one of New England’s biggest textile producers. Buffet acquired the control of Berkshire Hathaway in 1965. Then in the following decades it gradually exited the textile business and turned into an investment company. Its business diversifies into insurance, apparel, building products, finance and financial products, flight services, retail, grocery distribution and carpet and floor coverings etc. The return of Berkshire Hathaway’s Class A shares was higher than the return of Standard & Poor’s 500 index a lot between the year of 1977 and 2005. It implied that the performance of Berkshire Hathaway was outstandingly better.

Berkshire Hathaway has been seeking investment opportunity continuously and after years of search Berkshire Hathaway found an attractive target: MidAmerican Energy Holdings Company. It is the leader in the production of energy which acquired by Berkshire Hathaway in 2000. After the acquisition, the financial statement of MidAmerican Energy Holding Co. showed that the net earning is increasing from $81 million in 2000 to $416 million in 2003.

In 2005, MidAmerican Energy Holding Co. acquired the electric utility PacifiCorp from its parent company, Scottish Power plc. Both of Berkshire Hathaway’s and Scottish Power plc’s shares increased on the day of acquisition announcement. This may be because the deal created value for both buyers and sellers. The $2.55 billion gain in Berkshire Hathaway’s market value of equity may be good signal since the market reacts positively to the announcement. Investors may think that the intrinsic value of PacifiCorp (private company) was good because it fell within the range of competitors (listed) (details are shown in Appendix i).

From these examples we can see that Buffett treasure every valuable investment opportunity, which is always compared by him against the next best alternative, the “lost opportunity”. We...

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