Experts See Upside For Precision Castparts In Sale To Berkshire Hathaway

By Conrad Wilson (OPB)
Aug. 11, 2015 12:03 a.m.
Precision Castparts

Precision Castparts

Sloan Chambers / OPB


Berkshire Hathaway on Monday confirmed plans to buy one of Oregon's biggest companies: Portland-based Precision Castparts. The company manufactures metal products for industries including aerospace, oil and gas and power generation.  The $37 billion deal would be one of Berkshire’s largest acquisitions ever.

Precision Castparts is one of only three Fortune 500 companies headquartered in Oregon. It employees 30,000 people – 3,000 of them here in the state.

In a release confirming the deal, Berkshire Hathaway said the company's headquarters would remain in Portland.

“Nothing really will change," said Lawrence Cunningham, professor at George Washington University Law School and a Berkshire shareholder who's written a book on the company Warren Buffett heads.


"And that’s a unique, distinctive feature of Buffett’s strategy and Berkshire’s management philosophy. Most other people who acquire another company will then proceed to make significant changes," Cunningham told OPB’s Think Out Loud. He said that when Berkshire CEO Warren Buffet acquires a company, most of the infrastructure stays intact.

Buffet offered $32 billion in cash and would also assume the company’s debt. The offer breaks down to $235 per share.

If regulators and shareholders approve the deal, it would be the largest acquisition in Berkshire’s history.

“At some level, any company that Berkshire Hathaway would come knocking on the door saying we’d like buy to you, should be incredibly flattered,” said Michele Henney, a professor of finance and accounting at the University of Oregon.

She said the acquisition is good news for Oregon's economy. “When you’ve got two well-run companies coming together it just seems to me that this is going to be a very positive thing for all involved.”

Low fuel prices have lead to a slump in revenues for areas of Precision Castparts that deal with the oil and gas industry. But the vast majority of its business is in the aerospace industry.

Keith Schoonmaker, an analyst with Chicago-based investment research firm MorningStar, said one of the things that makes Precision Castparts special is that it has what's called an "economic moat."

"An economic moat is a company's competitive advantages," he said.

Schoonmaker said that means Precision Castparts' business is relatively protected from competitors because the cost of switching away would be expensive for its customers.

And the deal should be good for Precision Castparts. Schoonmaker said once Berkshire buys a company, it has a history of investing in that business.

"For comparison, let's think of Burlington Northern Santa Fe, the railroad that Berkshire acquired a few years back," he said. "The last two years, Burlington is investing $5 billion and this year $6 billion."

Schoonmaker said that's unprecedented in the railroad industry. And Precision Castparts could benefit from that kind of investment philosophy.

"So being under the Berkshire umbrella does not mean that the company's going to compromise its investments. I think quite the opposite."

If Buffet gets his way, Precision Castparts will be a wholly owned subsidiary of Berkshire early next year.