Purinex, Inc
Warren Buffett
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? Answer1: The increase in the stock price of Scottish Power plc and Berkshire Hathaway indicate a market approval for the acquisition and created value for both buyers and sellers. Answer2: a. the possible meaning of the changes in stock price is due to the fact that the deal created value for both buyers and sellers; Berkshire was more diversified after the acquisition. b. The $2.55 billion gain in Berkshire’s market value of equity implied that the intrinsic value of PacifiCorp was good because it fell within the range of competitors based on the following calculations: $2.55 billion / 312/18 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 (see Exhibit 9) Answer3: The possible explanations in the change in stock price for Berkshire would be for a couple of reasons. One of them is that investors invest based on the behavioral finance theory which implies that their investments are driven by psychological factors. These factors would be that believing that Mr. Buffet is the guru of investment, therefore he is right and it must be a very good investment .Moreover looking at the financial statements of march 2005 we see that the book value of PacifiCorp = 3377.1 Billions/312.12 million shares =$10.82 per share. However, the increase of 2.17 billion dollars at the day of the announcements of Berkshire implies that that true value of PacifiCorp should be higher if we divide the 2.17 billions /312.12 million shares we have that the PacifiCorp share should have a $ 6.95 dollar value higher. 2. Based on the multiples for comparable
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? Answer1: The increase in the stock price of Scottish Power plc and Berkshire Hathaway indicate a market approval for the acquisition and created value for both buyers and sellers. Answer2: a. the possible meaning of the changes in stock price is due to the fact that the deal created value for both buyers and sellers; Berkshire was more diversified after the acquisition. b. The $2.55 billion gain in Berkshire’s market value of equity implied that the intrinsic value of PacifiCorp was good because it fell within the range of competitors based on the following calculations: $2.55 billion / 312/18 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 (see Exhibit 9) Answer3: The possible explanations in the change in stock price for Berkshire would be for a couple of reasons. One of them is that investors invest based on the behavioral finance theory which implies that their investments are driven by psychological factors. These factors would be that believing that Mr. Buffet is the guru of investment, therefore he is right and it must be a very good investment .Moreover looking at the financial statements of march 2005 we see that the book value of PacifiCorp = 3377.1 Billions/312.12 million shares =$10.82 per share. However, the increase of 2.17 billion dollars at the day of the announcements of Berkshire implies that that true value of PacifiCorp should be higher if we divide the 2.17 billions /312.12 million shares we have that the PacifiCorp share should have a $ 6.95 dollar value higher. 2. Based on the multiples for comparable