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 $2.17 billion gain in Berkshire’s market value of equity imply about the intrinsic value of PacificCorp?
2 Based on the multiples for comparable regulated utilities, what is the range of possible values for PacifiCorp? (I am looking for numbers, but they are given in the case).
3 Assess Berkshire’s bid for PacifiCorp. Does it make sense given your answer to #2? Hint: How was has Berkshire Hathaway performed in the aggregate? What about some of its specific investments such as MidAmerican Energy Holdings? Hint: Computations will help to support your answers here
4. How has Berkshire Hathaway performed in the aggregate?
According to information divulged in the Berkshire Hathaway 2012 Annual Meeting Notes, in general, all of Berkshire’s companies, with the exception of the residential construction companies had shown good earnings growth in the first quarter of 2011. Each of Berkshire’s five largest non-insurance companies Burlington Northern Santa FE (BNSF), Iscar, Lubrizol, Marmon Group and MidAmerican Energy delivered record operating earnings in 2011 of more than $9 billion in aggregate. Unless the economy weakens in 2012, Buffett expects each of the “fabulous five” to once again set a record, with aggregate earnings comfortably topping $10 billion. In the first quarter 10-Q insurance section, Berkshire disclosed how an accounting change for GEICO on deferred policy acquisition costs resulted in a decline in earnings of $250 million although there was no impact on cash flow. GEICO had a terrific first quarter as float grew and the underlying business was better than presented. Buffett feels good about the first quarter and the year.
What about some of Berkshire Hathaway’s specific investments such as MidAmerican...