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Warren Buffet, 1995 Case Analysis

In: Business and Management

Submitted By krymae
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Warren Buffet

I. Point of View
Warren Buffet – CEO of Berkshire Hathaway

II. Statement of the Problem
Warren Buffet’s decision to acquire GEICO at a 26% premium compared to the market price.

III. Objectives a. To be able to understand the issue of the case. b. To be able to come up with a recommendation to help the company’s decision.

IV. Areas of Consideration * Buffett’s investment philosophy.
Buffett’s considerations for investment give a unique outlook. By reviewing his checklist, we attempt to gain insight as to why such a premium is included in the GEICO offer. * 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. * GEICO Corporation’s performance. * Geico had paid an increasing dividend each year. * Geico was the seventh largest auto insurer in the United States. * The firm was the lowest-cost insurance provider in the industry. * Geico’s share price had been hammered by double-digit inflation, higher accident rates, and high damage awards.

V. Alternative Courses of Action 1. Accept: The acquisition of GEICO at a premium.
Advantages:
* It would encourage a positive public interest * It would create an increase in company’s value
Disadvantages:
* Doubtful outcome for those people who criticize Buffet’s philosophy * Costly since it is bought at premium. 2. Decline the acquisition of GEICO at a premium.
Advantages:
* No further cost would be incurred. * More funds will be available for other investments.
Disadvantages:
* Opportunity cost 3. Lessen the price per share which will be bought...

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