Suggested Questions for Warren Buffett Case
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?
PacifiCorp had a very large amount of investors/stockholders as indicated in the footnote, which contributed to the large increase in Berkshire’s market value of equity.
2. Based on the multiples for comparable regulated utilities, what is the range of possible values for PacifiCorp? What questions might you have about this range? Already firmly placed in the energy sector of the economy, they moved into manufacturing as well as the service industry. For a man who claims diversification isn’t the answer, it certainly seems as those he has diversified his investment strategy across multiple platforms of the economy.
- Also in correspondence with the “assortment of smaller businesses generating about $3 billion in revenues.
3. Assess the bid for PacifiCorp. How does it compare with the firm’s intrinsic value? As an alternative, the instructor could suggest that students perform a simple discounted cash-flow (DCF) analysis.
I feel as though the amount of capital actually expended was worth the investment risk. The intrinsic value of PacifiCorp is really that the company can now invest in a whole new sector – the energy field – which can also allow the company to do a whole new slew of things in the business world. Already exposed to the energy field through its subsidiaries, the value of PacifiCorp had to have been through extensive research on the actual business and not the stock market of the business. Understanding the nature of the energy industry was already accomplished, making the acquisition that much safer as well.
4. How well has Berkshire Hathaway performed? How well has it performed in the aggregate? What...
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