Case 1 Warren Buffet 2005

Instituto Tecnológico de Estudios Superiores de Monterrey.

Seminario de Finanzas.

Profesor. Carlos Serrano.

Caso 1. Warren E. Buffet 2005.

Warren E. Buffett 2005

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?

In May 24, 2005, when MidAmerican Energy Holdings Company, subsidiary of Berkshire Hathaway Inc, announced would acquire PacifiCorp, subsidiary of Scottish Power, the stocks Class A closed up 2.4% for the day, for a gain in market value of $2.17 billion. And the stock of Scottish Power also jumped 6.28%; both stocks helps that S&P 500 closed up 0.02% too.

2. Based on the multiples for comparable regulated utilities, what is the range of possible values for PacifiCorp?

In exhibit 10, we can see the range of possible values for PacifiCorp:

Book Value: $3,377

Net Income: $7,553

Market value as multiple of Book Value: $5,678

*Million dollars

3. What is your assessment of Berkshire’s investments in Buffett’s big four: American Express, Coca Cola, Gillette and Wells Fargo?

We think that making an investment in Buffett’s big four, helps lower risks by diversification, so the Beta in the holding Berkshire would be smaller, and the stock is less correlated with the others, so the price would not be strongly impacted by the fall in the different industries.

4. How well has Berkshire Hathaway performed?

Berkshire ha desarrollado un buen funcionamiento ya que únicamente no se ha dedicado a la compra de acciones de una sola compañía o de un solo giro comercial. Actualmente Berkshire cuenta con participación en varios mercados permitiéndole con esto diversificar su portafolio sin importar el riesgo del mercado de cada empresa. Cuenta con inversiones en empresas como: detallistas, distribución de dulces, materiales de construcción, aseguradoras, distribución de artículos de vestir, construcción y manufacturación de suelos y...