Billionaire Warren Buffett on Monday unveiled the biggest acquisition yet in the famed investor's career, one that will affect a sizable chunk of Southern California's aerospace industry.
Berkshire Hathaway Inc., Buffett's diversified holding company based in Omaha, agreed to pay $32 billion in cash for Precision Castparts Corp., which makes parts and equipment for aircraft, power plants and other industrial uses.
Precision Castparts' operations include nearly 30 facilities with a combined 5,000 employees in Southern California, thanks in part to a string of acquisitions in recent years.
In a memo to its workforce, Precision Castparts said there were “no plans to reduce the number of employees” because of the deal with Buffett.
Buffett, who turns 85 this month, is one of the nation's richest people, with a net worth estimated at $66.5 billion by Forbes magazine.
His decades of canny stock picking and corporate acquisitions, and his patient willingness to see those investments flourish, earned him the nickname the “Oracle of Omaha.”
His investing tenets are legendary: Buy stocks or companies and hold them for the long term, stick with management you know, buy value and avoid stocks in industries you don't understand, such as certain technologies.
Precision Castparts fits into that thinking. Berkshire Hathaway already had been one of Precision Castparts' largest shareholders, with a 3% stake, and Buffett said in a statement that “I've admired PCC's operation for a long time.”
“For good reasons, it is the supplier of choice for the world's aerospace industry, one of the largest sources of American exports,” he said.
Precision Castings makes structural castings for aircraft, turbine blades, fasteners and a variety of other products. Boeing Co., Airbus and the rest of the aerospace industry accounted for 70% of its $10 billion in sales in its fiscal year ended March 29.
Buffett told CNBC that although Precision Castparts' growth has been hurt by the recent drop in oil prices that's prompted energy companies to defer large projects, “we're going to be in this business for 100 years, so it really doesn't make any difference what oil and gas does in the next year.”
Buffet also is betting that Precision Castparts, which will keep its name and maintain its headquarters in Portland, Ore., will benefit from the surge in commercial-aircraft orders in recent years.
Precision Castparts expanded its Southern California operations in 2011 with the purchase of PB Fasteners in Gardena, and again in 2014 with its acquisition of Aerospace Dynamics International, a Valencia operator of machining centers.
And two weeks ago, Precision Castparts agreed to acquire Noranco Inc., a maker of aerospace components whose U.S. manufacturing sites include a facility in Corona.
The expansion's architect, Precision Castparts Chief Executive Mark Donegan, drew praise Monday from Buffett, who told CNBC that Donegan “loves this business like I love Berkshire” and that “people like this are very, very rare.”
The company's $235-a-share sale to Berkshire Hathaway, which remains subject to approval by Precision Castparts' stockholders, is the latest multibillion-dollar deal in a wave of giant mergers involving U.S. companies this year.
Another one was the recent merger of food giants Kraft Foods Group Inc. and H.J. Heinz Co. that Buffett helped engineer. Berkshire Hathaway and the Brazilian private equity firm 3G Capital Partners had teamed up to buy Heinz two years earlier.
Berkshire Hathaway's other holdings include Geico insurance, Burlington Northern Santa Fe railroad, Benjamin Moore paints and See's Candies.
In response to the deal, Precision Castparts' stock soared $37.04, or 19%, to $230.92 a share Monday.