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Warren Buffet Case Abstract

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CASE#1 Abstract: Warren E. Buffett, 2005
On May 24, 2005, the MidAmerican Energy Holdings Company (a subsidiary of Berkshire Hathaway) would acquire the electric utility PacifiCorp. M would purchase P with $5.1 billion in cash and $4.3 billion in liabilities and preferred stock. MidAmerican is a leader in the production of energy from diversified sources; it is also the owner of the second-largest full-service independent real estate brokerage in the US. Until March 2002, Berkshire has acquired a 9.9% voting interest and an 83.7% economic interest in the equity of MidAmerican. By 2004, Berkshire has always announced and emphasized that it is the time to take some action (acquisition) and to find the “elephant” to make one significant gain. The acquisition of PacifiCorp thus was a good investment target. First of all, PacifiCorp is a leading, low-cost energy producer and distributor which served 1.6million customers in six states in the western US. It has a strategic fit with MidAmerican. Now the main issues are to measure the bid price and future benefits to see that whether this acquisition can fit the criteria of Berkshire – long-term goal of a 15% annual growth rate in intrinsic value.
PS: Long-term economic goal is to maximize Berkshire's average annual rate of gain in intrinsic busn value on a per-share basis. We do not measure the economic significance or performance by its size; but by per-share progress. The rate of per-share progress will diminish in the future - a greatly enlarged capital base will see to that. But we will be disappointed if our rate does not exceed that of the average large American corporation.
The case also illustrates the eight investment philosophies considered by Buffett to make him so successful. It can be thought via these aspects to analyze this acquisition case more. 1. Economic Reality: every investment should focus on...

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