Warren Buffet Case Solution
Case 1 | Warren Buffet | Group 7 |
According to the case, there are stock price changes for Berkshire Hathaway and Scottish Power plc on the day of the acquisition announcement. Also, the bid price for PacifiCorp is $9.4 billion. After knowing this announcement, Berkshire Hathaway’s Class A shares price went up and make them gained in market value $2.17 billion. In Berkshire and other investors’ point of view, After Berkshire takeover PacifiCorp, it might have a good development and future so that the stock price went up. Berkshire believed that PacifiCorp can have good earning returns in the future. The intrinsic value is more valuable than its cost so they are willing to pay $9.4 billion to acquire.
Moreover, based on the multiples for comparable regulated utilities, we can see that in exhibit 10, the range of possible enterprise values for PacifiCorp is form $6.252 billion to $9.289 billion. And the range of possible market value of equity is $4.277 billion to $5.904 billion. In this case, Berkshire used $9.4 billion to acquire the electric utility PacifiCorp. This price is out of the range neither of possible enterprise value nor of possible market value. So, a very obvious question is raised here----why Berkshire was willing to purchase PacifiCorp at such high price? In the article, Buffett mentioned “intrinsic value is all important and is the only logical way to evaluate the relative attractiveness of investment and business.” That means Buffett make purchases at the price below or equals the intrinsic value. And we all know market value is the price at which an asset would trade in a competitive auction setting. At the point of possible market value, this bid price is much higher than the market given. The question here is how Buffett can know the intrinsic value of PacifiCorp is worth that much when the market possible highest price is just $5.904 billion. On the other hand, enterprise value is a measure of a company's value, often used as an
According to the case, there are stock price changes for Berkshire Hathaway and Scottish Power plc on the day of the acquisition announcement. Also, the bid price for PacifiCorp is $9.4 billion. After knowing this announcement, Berkshire Hathaway’s Class A shares price went up and make them gained in market value $2.17 billion. In Berkshire and other investors’ point of view, After Berkshire takeover PacifiCorp, it might have a good development and future so that the stock price went up. Berkshire believed that PacifiCorp can have good earning returns in the future. The intrinsic value is more valuable than its cost so they are willing to pay $9.4 billion to acquire.
Moreover, based on the multiples for comparable regulated utilities, we can see that in exhibit 10, the range of possible enterprise values for PacifiCorp is form $6.252 billion to $9.289 billion. And the range of possible market value of equity is $4.277 billion to $5.904 billion. In this case, Berkshire used $9.4 billion to acquire the electric utility PacifiCorp. This price is out of the range neither of possible enterprise value nor of possible market value. So, a very obvious question is raised here----why Berkshire was willing to purchase PacifiCorp at such high price? In the article, Buffett mentioned “intrinsic value is all important and is the only logical way to evaluate the relative attractiveness of investment and business.” That means Buffett make purchases at the price below or equals the intrinsic value. And we all know market value is the price at which an asset would trade in a competitive auction setting. At the point of possible market value, this bid price is much higher than the market given. The question here is how Buffett can know the intrinsic value of PacifiCorp is worth that much when the market possible highest price is just $5.904 billion. On the other hand, enterprise value is a measure of a company's value, often used as an