...BERKSHIRE HATHAWAY PURCHASES GEICO WARREN BUFFET Executive Summary Berkshire Hathaway has made a bid for the remaining portion of GEICO stock. This report reviews the offer initiated by Warren Buffett. The details of this report include: • Valuation of GEICO stock. The $70 offer made by Warren Buffett and Berkshire Hathaway includes a 26% premium over the current GEICO stock price of $55.75. This report attempts to determine a range of appropriate stock prices for GEICO. Using the Gordon dividend discount model, along with historical dividend information and projections by Value Line, we estimate the value of GEICO stock in the range of $58 to $80. A review of historical growth rates in GEICO dividends also lends credibility to the investment’s future potential. • Review of Warren Buffett’s investment record. While our analysis lends credence to the bid price of $70 per share for GEICO, we also examine the historical record of Warren Buffett. Buffett’s investment success may add to shareholder’s comfort, as his track record is remarkable when compared to broader market results. • Buffett’s investment philosophy. A letter to shareholders gives us a unique look at Buffett’s considerations for investing. By reviewing his checklist, we attempt to gain insight as to why such a premium is included in the GEICO offer. • Other issues. Buffett’s position on GEICO’s board of directors may shed light on the amount of information Buffett had about the future prospects of GEICO. At first...
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...Marketing The slogan "More saving. More doing." was introduced by The Home Depot in the March 18, 2009 circular, replacing "You can do it. We can help." which had been used since 2003. Other slogans used in the past 25 years include "The Home Depot, Low prices are just the beginning" in the early 1990s and "When you're at the Home Depot, You'll feel right at home" in the late 1990s and "The Home Depot: First In Home Improvement!" from 1999-2003 RISK FACTORS BEHIND CORPORATE FAILURE 1 LACK OF BOARD EFFECTIVENESS Ineffective boards suffered from limitations on skills and competence, as well as on the nonexecutive directors’ (NED) ability to monitor and control senior executives effectively. For instance, the board director who was responsible for refining at BP at the time of the Texas City refinery explosion had no refining experience. Independent Insurance’s NEDs did not have insurance industry expertise. 2 BOARDS' RISK BLINDNESS This is characterised by a board’s failure to engage with important risks, such as risks to reputation and “licence to operate”, to the same degree that they engage with reward and opportunity. For example, Railtrack’s licence to operate depended on the UK government, but the company outsourced track maintenance, despite the fact that this was one of its core responsibilities to its customers. 3 POOR LEADERSHIP ON ETHOS AND CULTURE Double standards were perceived in cases such as Maclaren’s dealing with its US and UK push-chair (baby stroller)...
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...Buffett sent his wallet to the winning bidder, he removed a significant and personal item that reveals 10 secrets to his extraordinary wealth-building success. A t a recent auction for a girl’s charity, Warren Buffett’s Wallet was won for a bid of $210,000 because it included a stock tip. Before he sent his 24-year-old wallet to the winning bidder, he removed a significant and personal item that reveals many secrets to his extraordinary wealth-building success. What was the item? I’ll tell you in a moment. First, let me take you back to 1969. At this time, Warren Buffett was in the process of liquidating his Buffett Partnership and focusing his time and energy on building the holding company that’s known today as Berkshire Hathaway. And one of the first businesses he purchased as a wholly owned subsidiary of his new conglomerate was the Illinois National Bank, which was, at the time, the largest bank in Rockford. One of the things that makes this purchase particularly interesting is that, viewed over time, the purchase and management of the bank provides an almost picture-perfect example of the ten investment and management principles that have made Buffett the world’s greatest investor. SECRET NUMBER 1: Invest in an old economy company that’s a leader in an industry you understand. Banking may not be the world’s oldest profession, but it’s one of the oldest, so a bank is clearly an “old economy” company. The Illinois National Bank [INB] was established...
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...goals in the period." IBM isn't the only company that sells technology to businesses to post disappointing results. A month ago, Oracle Corp. ORCL +0.78% reported that its sales stalled in its latest quarter and also blamed its sales force. SAP AG, SAP.XE -2.99% a rival to both companies, provided the counterpoint, reporting a 17% increase in profit Friday and saying it took market share from competitors. Enlarge Image image image Zuma Press IBM's disappointing results put pressure on CEO Virginia Rometty. With its diverse operations and focused management, IBM has a reputation for finding its way around problems that affect others in the industry. That stability attracted investors including Warren Buffett, who's Berkshire Hathaway Inc. BRKB +2.21% said in November 2011 that it had plowed more than $10 billion into IBM stock. [image] The Wal Street Journal But the earnings miss this week has analysts speculating that shifts like the rise of cloud computing may be...
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...Assignment #2 Mergers and Acquisitions Bus 508: Contemporary Business ABSTRACT Berkshire Hathaway is “a holding company that specializes in insurance-related companies, but has a wide array of interests, making it a conglomerate (investorwords.com)”. The company is well known due to its owner, investment icon, Warren Buffet. “The second-richest American’s net worth continues to surge, despite his giving away billions, thanks to the juggernaut performance of Berkshire Hathaway (Forbes.com)” His current net-worth is $71.2 billion Jorge Paulo Lemann, Marcel Telles, and Carlos Alberto Sicupira established 3G Capital in 2004. The firm has offices in New York City and Rio de Janeiro. 3G Capital is a global investment firm focused on long-term value, with a particular emphasis on maximizing the potential of brands and businesses (3GCapital.com). The company is known for large acquisitions such as Anheuser Busch & Burger King. H.J. Heinz is a 144 year-old Pittsburgh based company. H.J. Heinz Company, offering “Good Food Every Day”™ is one of the world’s leading marketers and producers of healthy, convenient and affordable foods specializing in ketchup, sauces, meals, soups, snacks and infant nutrition. Heinz provides superior quality, taste and nutrition for all eating occasions whether in the home, restaurants, the office or “on-the-go.”(Heinz.com) Heinz is a global family of leading branded products, including Heinz® Ketchup, sauces, soups, beans,...
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...Case Study of Warren E. Buffet In 1995 Berkshire Hathaway has made a bid for the shares of GEICO. This report reviews the offer made by Warren Buffet and will try to prove that the acquisition of GEICO will serve the long-term goal of Berkshire Hathaway and the bid price was appropriate. Furthermore, it will explain what may have caused for the share price increase for Berkshire Hathaway at the announcement of GEICO’s acquisition. Would the GEICO acquisition serve the long-term goals of Berkshire Hathaway? In 1976, Warren Buffet paid $45.7 million for 34.25 shares of GEICO. Review of GEICO’s historical dividends shows that GEICO has been a very profitable investment for Berkshire Hathaway. The growth rate for 1994 is a sharp increase, but even if the growth rate for 1994 is not considered, GEICO’s historical increase in dividends has been considerably high so that acquisition of GEICO will serve the long-term goals of Berkshire Hathaway. What might account for the share price increase for Berkshire Hathaway at the announcement? Review of Warren Buffet’s historical investment success might explain the increase in share price for Berkshire Hathaway at the announcement. Given that he has had a good track record, it is expected that shareholders respond positively. In 1977, the price of Berkshire Hathaway was $89 closing at $25,400 by 1995, an unparalleled annual growth of 37.7%. In comparison, the growth rate of the S&P...
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...Berkshire Hathaway AFIN250 Monday 5pm Christopher Lam 43820832 Savneet Kambo 44677987 Jason Weng 43885772 Table of Contents Executive Summary ............................................................................................................................2 Culture, a catalyst for Berkshire’s success ...........................................................................................2 Heir to Berkshire Hathaway ...............................................................................................................3 Graham & Dodd valuation model .......................................................................................................3 Bruner’s Disaster Framework, a risk assessment tool ..........................................................................4 Diversification of Berkshire Hathaway ................................................................................................5 Volatility timing .................................................................................................................................6 Conclusion .........................................................................................................................................7 Appendix ...........................................................................................................................................8 Reference ..........................................................................
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...Case Question 1 In his 2002 letter to shareholders, Warren Buffett referred to financial derivatives as the "financial weapons of mass destruction" and a ticking "time bomb" waiting to explode. His perspective may well be derived from his own experience with some derivative positions his company, Berkshire Hathaway Inc, inherited from the $22 billion purchase of General Reinsurance Corporation in 1998 (Berkshire Hathaway Inc, 2002). Unable to find an agreeable counterparty to buy the General Reinsurance Securities, a subsidiary of General Reinsurance Corporation that deals with derivatives, Buffett decided to close it which required him to unwind the subsidiary's derivative positions. The complexity of the derivatives positions took him years to complete the unwinding and at a pretax loss of $173 million for General Reinsurance Corp in 2002 (Berkshire Hathaway Inc, 2002) and $409 million in cumulative pretax loss as of 2008 (Berkshire Hathaway Inc, 2009). He likens the unwinding process to entering hell, stating that derivatives positions were "easy to enter and almost impossible to get exit" (Berkshire Hathaway Inc, 2004). In 2002, trades in derivatives were growing rapidly in recent years and they pose a "mega-catastrophic risk" that could harm not only their sellers and buyers, but the whole economic system for the following reasons: 1. Mark-to-market accounting (Investopedia 2011) is a legal form of accounting for a venture involved in buying and selling securities...
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...BANKING ACADEMY OF VIETNAMBTEC HND IN BUSINESS (ACCOUNTING)ASSIGNMENT COVER SHEET | NAME OF STUDENT | Bui Kim Thu | REGISTRATION NO. | F06-137 | UNIT TITLE | Unit 3: Organisations and Behaviour | ASSIGNMENT TITLE | Berkshire Hathaway | ASSIGNMENT NO | 1 of 2 | NAME OF ASSESSOR | Mrs. Le Thu Hanh | SUBMISSION DEADLINE | 9/12/2013 | ------------------------------------------------- ------------------------------------------------- I, __________________________ hereby confirm that this assignment is my own work and not copied or plagiarized from any source. I have referenced the sources from which information is obtained by me for this assignment. ------------------------------------------------- ------------------------------------------------- ------------------------------------------------- ------------------------------------------------- ------------------------------------------------- ________________________________ _________________________ ------------------------------------------------- ------------------------------------------------- Signature Date ------------------------------------------------- Assignment Received By: Date: Assignment Received By: ...
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...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...
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...Prepared By: Md.Tazul Islam Roll:133 Batch:46D Date of Submission: 11-12-2011 Executive Summary: Warren Buffett is considered as one of the most successful investors of the market. A man who started his journey as an investor at the age of 13, continued to cross hurdles of his business carrier. It's annual report season, which includes announcements from the CEO and/or chairman of every public U.S. company. Given that Warren Buffett, the chairman of Berkshire Hathaway, is the most successful investor of all time, you might expect that a 23-page communication from him would be jargon-packed and over most people’s heads. In actuality, Buffett's annual letter to shareholders is famously down-to-earth, conversational, and witty. Never mind for now the specific points he makes: how he communicates his message is a lesson for all of us. Warren Buffett writes his letter to shareholders as a letter to his sisters - then crosses out "Dear Doris and Bertie" and replaces it with "To the Shareholders of Berkshire Hathaway". It’s not enough that Warren Buffett has become one of the richest men in the world. He’s also a world-class communicator – and nowhere does this gift go on public display more than in his annual letter to shareholders, to the CEOs and the public events that he attends like auction event, different functions. And all these activities offer terrific lessons for startup ventures in shaping their communications. Lesson No. 1: One Must Converse Like a Real Human...
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...the chairperson and chief executive officer (CEO) of Berkshire Hathaway Inc., announced that MidAmerican Energy Holdings Company, a subsidiary of Berkshire Hathaway, would acquire the electric utility PacifiCorp. In Buffett’s largest deal since 1998, and the second largest of his entire career, MidAmerican would purchase PacifiCorp from its parent, Scottish Power plc, for $5.1 billion in cash and $4.3 billion in liabilities and preferred stock. “The energy sector has long interested us, and this is the right fit,” Buffett said. At the announcement, Berkshire Hathaway’s Class A shares closed up 2.4% for the day, for a gain in market value of $2.17 billion.1 Scottish Power’s share price also jumped 6.28% on the news2; the S&P 500 Composite Index closed up 0.02%. Exhibit 1 illustrates the recent share-price performance for Berkshire Hathaway, Scottish Power, and the S&P 500 Index. The acquisition of PacifiCorp renewed public interest in its sponsor, Warren Buffett. In many ways, he was an anomaly. One of the richest individuals in the world (with an estimated net worth of about $44 billion), he was also respected and even beloved. Though he had accumulated perhaps the best investment record in history (a compound annual increase in wealth for Berkshire Hathaway of 24% from 1965 to 2004),3 Berkshire paid him only $100,000 per year to serve as its CEO. While Buffett and other insiders controlled 41.8% of Berkshire Hathaway, he ran the company in the interests of all shareholders. “We...
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...around 68 million people in 119 countries and has branches of almost 34,000 worldwide. As of 2012, McDonald’s has an income of $5.46 billion and has total employees of nearly 1.8 million as of this year all around the planet. McDonald’s has been known in using Coca-Cola products, same as through with Heinz ketchup especially with their burger and fries. But last October 27, 2013, McDonald’s have finally but ditched the use of Heinz ketchup. If McDonald’s has been serving burgers and fries with Heinz ketchup to 119 countries around the world for 40 years, now it will serve Hunt’s ketchup. The reason of this change in McDonald’s was because of the changes made in the company of HJ Heinz, Co. Earlier this year, Warren Buffett's Berkshire Hathaway affiliating 3G Capital, a Brazilian company that controlled Burger King, bought HJ Heinz Co. for $17.3 billion. Thus Bernado Hees was brought in as the new CEO of HJ Heinz Co. He was the executive chair of Burger King, the fast food chain that has a rival with McDonald’s. Unfortunately, this changed made by HJ Heinz Co. made a conflict with agreements and business deals between the two thus making this deals happen difficult and that McDonald’s decided to end their partnership with HJ Heinz Co. With this situation, I will relate it to first, to the Law of Supply and then to Law of Demand since McDonald’s is now using a more convenient and popularly used brand of ketchup worldwide which is Hunt’s ketchup comparing it to HJ Heinz ketchup...
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...on the acquisition announcement was the market reacting to the company being taken over by Warren Buffett and his company, which had a successful track record of managing companies into successful business strategies, the deal the had a positive effect on both buyers and sellers. The intrinsic value of PacifiCorp was the elephant that Warren Buffett was looking for because he was willing to pay a premium of $16.30 per share for the acquisition. 2. The possible values for PacifiCorp are: 1. Revenue median of $6.252 Billion, mean of 6.584 Billion. 2. EBIT median of 8.775 Billion, mean of 9.076 Billion. 3. EBITDA median of 9.023 Billion, mean of 9.076 Billion. 4. Net income median of 7.596 Billion, mean of 7.553 Billion. 5. ESP median of 4.277 Billion, mean of 4.308 Billion. 6. Book value median of 5.904 Billion, mean of 5.678 Billion. 3. I feel the amount of capital use to acquire PacifiCorp was worth the investment risk. The intrinsic value of PacifiCorp is that the company can now invest in a whole sector of the energy field. The value of PacifiCorp was in the actual business not the stock price and the extensive research that was done in understanding the energy industry made the acquisition safer. 4. Berkshire Hathaway has consistently outperformed the market since its creation in 1965. In 1977 the firms year-end closing share price was 107, on May 24, 2005 the closing price on its class A shares reached 85,550. 5. They invested in great companies each with...
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...Warren Buffett and Gillette Background of the Active Investor Warren Buffett is known as one of the world’s most notable investors. He is a self-made investor, now worth billions of dollars. Buffets premise is that people should base their investing on common sense and search out assets that are selling for less than they are worth (Pardoe, 2005). At an early age Buffett had a knack for making money. At six year old, Buffett made a five cent profit by purchasing a six-pack of Coca-Cola for twenty-five cent and reselling each bottle for a nickel. At eleven, he purchased three shares of Cities Service at $38 per share. Shortly after buying the stock, it fell to just over $27 per share (Kennon). When the shares rebounded to $40 he sold the shares, but regretted his actions when the shares shot up to $200. The experience taught him that patience is a virtue (Kennon). Buffett was a graduate of the University of Nebraska-Lincoln. Some time after graduation, Buffett had the opportunity to work for his mentor, Ben Graham, on Wall Street. There, he spent his day analyzing S&P reports, searching for investment opportunities (Kennon). He took a different interest than that of his mentor, he became interested in how a company worked, what made it superior to competitors and observed how the company was managed when deciding to invest; he was not interested in the corporate leadership of the companies he researched and invested in. In the mid-1950’s Buffett aligned himself...
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