Warren Buffet 2005
Questions for: Warren Buffet 2005
1. What is the possible meaning of changes in the stock price of Scottish Power plc and Berkshire Hathaway on the day of the acquisition announcement? Specifically, what does the $2.17 billion gain in the value of Berkshire Hathaway say about the intrinsic value of PacifiCorp?
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.
2. Based on the multiples of comparable regulated utilities, what is the range of possible values for PacifiCorp?
We find the range of possible values for PacifiCorp in Exhibit 10.
i. Revenue median of $6.252 Billion, mean of $6.584 Billion.
ii. EBIT median of $8.775 Billion, mean of $9.289 Billion.
iii. EBITDA median of $9.023 Billion, mean of $9.076 Billion.
iv. Net Income median of $7.596 Billion, mean of $7.553 Billion.
v. EPS median of $4.277 Billion, and a mean of $4.308 Billion.
vi. Book value median of $5.904 Billion, mean of $5.678 Billion.
3. Assess the bid for PacifiCorp. How does it compare with the firm’s intrinsic value?
(If you know what a DCF is, you might try to estimate it.)
4. How well has Berkshire Hathaway performed? What about its investment in MidAmerican Energy Holdings?
Overall, Berkshire Hathaway has performed brilliantly in the last 40 years. Berkshire's class A shares have been among the highest-priced shares on the New York Stock Exchange, in part because they have never had a stock split and never paid a dividend, retaining corporate earnings on its balance sheet in a manner that is impermissible for private investors and mutual funds. [1]
The company averaged an annual growth in book value of 20.3% to its shareholders for the last 40 years, while employing large
1. What is the possible meaning of changes in the stock price of Scottish Power plc and Berkshire Hathaway on the day of the acquisition announcement? Specifically, what does the $2.17 billion gain in the value of Berkshire Hathaway say about the intrinsic value of PacifiCorp?
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.
2. Based on the multiples of comparable regulated utilities, what is the range of possible values for PacifiCorp?
We find the range of possible values for PacifiCorp in Exhibit 10.
i. Revenue median of $6.252 Billion, mean of $6.584 Billion.
ii. EBIT median of $8.775 Billion, mean of $9.289 Billion.
iii. EBITDA median of $9.023 Billion, mean of $9.076 Billion.
iv. Net Income median of $7.596 Billion, mean of $7.553 Billion.
v. EPS median of $4.277 Billion, and a mean of $4.308 Billion.
vi. Book value median of $5.904 Billion, mean of $5.678 Billion.
3. Assess the bid for PacifiCorp. How does it compare with the firm’s intrinsic value?
(If you know what a DCF is, you might try to estimate it.)
4. How well has Berkshire Hathaway performed? What about its investment in MidAmerican Energy Holdings?
Overall, Berkshire Hathaway has performed brilliantly in the last 40 years. Berkshire's class A shares have been among the highest-priced shares on the New York Stock Exchange, in part because they have never had a stock split and never paid a dividend, retaining corporate earnings on its balance sheet in a manner that is impermissible for private investors and mutual funds. [1]
The company averaged an annual growth in book value of 20.3% to its shareholders for the last 40 years, while employing large