We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy

Berkshire Hathaway’s Pacificorp Aqusitcion

The whole doc is available only for registered users

A limited time offer! Get a custom sample essay written according to your requirements urgent 3h delivery guaranteed

Order Now

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 $2.55 billion gain in Berkshire’s market value of equity imply about the intrinsic value of PacifiCorp? Answer: –

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 on the multiples for comparable regulated utilities, what is the range of possible values for PacifiCorp? What questions might you have about this range? Answer:- 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? Perform a discounted cash-flow (DCF) analysis of PacifiCorp.

Anwer :-
If you use CAPM for the simple DCF analysis: Return = rf +B (rm-rt)

rf=5.762 Return =5.762+.75(10.5-5.762)

B=.75 =9.32%=Discount rate


$5.1/(1+.0932)=$4.76 (it is in range of the rest of the comparable firms) 4. How well has Berkshire Hathaway performed? How well has it performed in the aggregate? What about its investment in MidAmerican Energy Holdings?

BRK has performed very well. BRK has always out preformed the market from its inception 1965. In the year 1977 the stock was worth 107$ and in the 24 of may 2005 the stock was worth 85000$ as a Class A stock. BRK has a growth of 24% since the year 1965, which achieves more than the great stocks in the market that preform a range of 10.5%. BRK started out with a drop due to the statues of the inflation, technological change, and intensifying competition from foreign competitors, but has recuperated well after closing the textile side of their business.

BRK had recently been performing below S&P 500 Index according to chart 1, from April 2005 to May 2005. The outstanding performance of Scottish power comparing to the S&P 500 in the time between March to May 2005 attracted BRK to the acquiring PacifiCorp.

In my opinion I believe that it was a good investment. After looking at the company that served over 5 Million customer, it lighted up in Warren buffet radar as a great investment so they stated in the year 2000 by acquiring 1.24 Billion dollars which was 9.7% of the voting interest and 76% of the economic interest in the equity of MidAmerican. In March 2004 BRK had another Acquiring of 6.7 Million shares that were as 9.9% and 83.7% economical interest. This allows them to have a major stake in the company without violating utility laws, which has proven to be successful for them. Demonstrated in chart 6, MidAmerican Holdings had net earnings of 170 million in 2004, but compared to 2003 net earnings of 416 million, MidAmerican had a net loss from 2003-2004. To push up the cash of NI they acquired PacifiCorp.

5. What is your assessment of Berkshire’s investments in Buffett’s Big Four: American Express, Coca-Cola, Gillette, and Wells Fargo?

BRK had invested in well-established firm, where people use them on daily basis, they had pay a lot of money but it came back in a 5 times more from they had pay, as I calculated their initial investments in the big four companies they had pay 3.8 Billion, and when we calculate the market value of these firms we find that they worth 24 Billion dollars, that would round up to be 21 Billion dollars, which in my opinion is a great investment and success.

6. From Warren Buffett’s perspective, what is the intrinsic value? Why is it accorded such importance? How is it estimated? What are the alternatives to intrinsic value? Why does Buffett reject them?

a. The Discounted Value of the cash can be calculated by taking the remaining life of the business. The per share progress is the intrinsic Value. By Warren measures intrinsic value is the present value of the future
expected performance.

b. Because it focuses on the earning returns in excess of the cost of the capital, that is the most reasonable way to evaluate the return.

c. The gain in intrinsic value could be modeled as the value added by a business above and beyond the charge for the use of capital in that business.

d. The alternative is accounting profit, it estimates BRK by its size, by the performance of the company.

e. Accounting measures is traditional, because it looks at the GAAP and not on the economical performance reality that would mean we should look at the trademarks, patents, and management. All those things that cant be measured by the performance of the company accounting statements. 7. Critically assess Buffett’s investment philosophy. Be prepared to identify points where you agree and disagree with him.


The simple methods of investment strategy that Warren Buffett created are 8, I will discuss them in an individual bases, and write my honest opinion on each one of them. I agree with the first element that analyses the economical reality of investments. The majority of investors focus on the financial conditions and net profits, not considering the intangible assets of the company such as the management experience.

By taking a daily idea that every one of us use and converting this strategy to a complex one and developing it in the business path I agree with Warren Buffett. By analyzing the expected returns of an investment compared to the rate of return of using that same investment money in another investment, every single one of use thinks of that alternative in making any decision, from the simple things to life decisions.

By looking in the historical data that would make Warren Buffett choice his investments, I agree with this element because it would give you a full look on the history of the company.

Buffet looks that the value per share of the industry, that would analyze the earn returns of the cost of capital, I agree with the Buffett in this point also because analyzing the size of performance of the size of the company wouldn’t reflect the real value of the firm.

By using a 30 Year Treasury bond rate instead of the CAPM rate I agree with Warren Buffett, By analyzing his stocks and knowing that they don’t need a risk factor. It seems that Warren is sure about his decisions because he has focused on stable earning and predictable ones.

I disagree with Warren Buffett in the Sixth element; he sees that the diversification of any portfolio is wrong. He sees that the diversification is a safety zone of any mistake, but in his view he feels confident and would not diversify any of his portfolios, I think any investor should differentiate his portfolio so he would be in that safe zone that Buffett refuses to be in, and the correlation of the stocks wouldn’t be high and that would maintain the investor away from errors and risks.

In the seventh element which talks about the proper research I totally agree with Warren Buffett at this point, an investor should do all the research that he could do before even thinking of a company or a Corp to invest in and not only follow his instinct or luck when investing.

Finally, I agree that both the management and the shareholders of any firm must have the same goals that they seek to and want, because that will make them all on the same track. The management must have their wealth invested in the company shares so they have a mutual interest with the investors.

8. Should Berkshire Hathaway’s shareholders endorse the acquisition of PacifiCorp?

Answer:- Yes the shareholders should endorse the acquisition, because it affected the price of the stock and its not adding a lot of risk to BRK portfolio, it should consider looking and investing more in those safe types of investments.

Related Topics

We can write a custom essay

According to Your Specific Requirements

Order an essay
Materials Daily
100,000+ Subjects
2000+ Topics
Free Plagiarism
All Materials
are Cataloged Well

Sorry, but copying text is forbidden on this website. If you need this or any other sample, we can send it to you via email.

By clicking "SEND", you agree to our terms of service and privacy policy. We'll occasionally send you account related and promo emails.
Sorry, but only registered users have full access

How about getting this access

Your Answer Is Very Helpful For Us
Thank You A Lot!


Emma Taylor


Hi there!
Would you like to get such a paper?
How about getting a customized one?

Can't find What you were Looking for?

Get access to our huge, continuously updated knowledge base

The next update will be in:
14 : 59 : 59