Berkshire Hathaway
Introduction
Warren E. Buffett, the chairperson of Berkshire Hathaway (BH), is the world’s greatest investor of the current era. From 1965 to 2007, BH has compounded annual gain of 20.3% while S&P has 9.3% (Berkshire Hathaway Inc., 2009). Most investors get normal returns and believe the market is in semi strong form. However Buffett believes the market is inefficient and acts on his own investment philosophy. This report will analysis BH’s acquisition of PacifiCorp, evaluate Buffett’s performance against EMH and discuss his ethical standards.
Berkshire Hathaway Ltd. VS Scottish Power Plc.
After the acquisition was announced, BH Ltd. and Scottish Power Plc. both experienced price ran up. Reilly and Brown (2009) state that, the acquired firm’s stock price usually increases; resulting from the premium offered by the acquiring firm, whereas stock price in the acquiring firm usually decreases as the concern of overpaid. However, the deal between BH and Scottish Power was a different case.
BH and PacifiCorp share price increased by 2.4% and 6.28% on the announcement day, it indicated that most investors and markets recognized the bid of PacifiCorp was fair and believed that acquiring PacifiCorp was a good investment that could benefit BH. Malatesta and Thompson (1985, p.249) stated that an acquisition program is desirable and profitable for active acquirers and successive acquisition attempts associated with positive announcement effects. Therefore, as an active acquirer, BH could benefit from the successful acquisition of PacifiCorp and have positive share price performance.
In addition, the share price performance of PacifiCorp proved the existence of its intrinsic value and Buffett made a right decision in recognizing the fact. Jennings and Mazzeo (1991, p. 140) suggested that the acquisition process is usually associated with significant unexpected stock returns and bidder would only make an offer to the target when the value of target is less than the
Warren E. Buffett, the chairperson of Berkshire Hathaway (BH), is the world’s greatest investor of the current era. From 1965 to 2007, BH has compounded annual gain of 20.3% while S&P has 9.3% (Berkshire Hathaway Inc., 2009). Most investors get normal returns and believe the market is in semi strong form. However Buffett believes the market is inefficient and acts on his own investment philosophy. This report will analysis BH’s acquisition of PacifiCorp, evaluate Buffett’s performance against EMH and discuss his ethical standards.
Berkshire Hathaway Ltd. VS Scottish Power Plc.
After the acquisition was announced, BH Ltd. and Scottish Power Plc. both experienced price ran up. Reilly and Brown (2009) state that, the acquired firm’s stock price usually increases; resulting from the premium offered by the acquiring firm, whereas stock price in the acquiring firm usually decreases as the concern of overpaid. However, the deal between BH and Scottish Power was a different case.
BH and PacifiCorp share price increased by 2.4% and 6.28% on the announcement day, it indicated that most investors and markets recognized the bid of PacifiCorp was fair and believed that acquiring PacifiCorp was a good investment that could benefit BH. Malatesta and Thompson (1985, p.249) stated that an acquisition program is desirable and profitable for active acquirers and successive acquisition attempts associated with positive announcement effects. Therefore, as an active acquirer, BH could benefit from the successful acquisition of PacifiCorp and have positive share price performance.
In addition, the share price performance of PacifiCorp proved the existence of its intrinsic value and Buffett made a right decision in recognizing the fact. Jennings and Mazzeo (1991, p. 140) suggested that the acquisition process is usually associated with significant unexpected stock returns and bidder would only make an offer to the target when the value of target is less than the