Berkshire News Briefs - 8/12/15

Warren Buffett Cuts Berkshire Hathaway's Biggest Ever Deal In $37B Precision Castparts Buy (Forbes)

On Monday morning, Berkshire confirmed it would buy aerospace components giant Precision Castparts (PCP) for $235 a share in cash, valuing it at $37.2 billion, when including the Portland, Oregon based company’s near $5 billion in debt. The deal comes at a 20% premium to Precision Castparts closing share price on Friday, however, it amounts to a slight discount from the company’s stock price at the beginning of 2015.

For Berkshire Hathaway, the deal is a major bet on U.S. aerospace and manufacturing, bringing a top parts supplier to defense and aviation companies around the world into the coffers of Buffett’s conglomerate. With over $10 billion in annual sales, Precision Castparts would instantly become one of Berkshire’s largest operating subsidiaries. The company reported a $1.5 billion profit in 2014, slightly less than the profits Berkshire’s energy unit generated last year. [...]

Berkshire Gets Dealmaker CEO in Precision Castparts Purchase (Bloomberg)

Mark Donegan, chairman and chief executive officer of Precision Castparts Corp., made more than a few deals of his own before becoming a target of billionaire Warren Buffett’s Berkshire Hathaway Inc.

Precision Castparts, a maker of equipment for the aerospace and energy industries, has completed at least 30 acquisitions since Donegan took over as CEO in 2002. [...]

Donegan could be an investment in the future for Buffett: The CEO -- typically loath to talk to the press -- was 58 when Precision Castparts filed its proxy in July. Berkshire likes to buy high-quality management teams that can help direct its vast cash pile, said Joel Levington, a senior credit analyst with Bloomberg Intelligence. [...]

Berkshire Profit Falls, Missing Estimates on Insurance Slump (Bloomberg)

Warren Buffett’s Berkshire Hathaway Inc. posted second-quarter profit that missed analysts’ estimates because of higher claims costs at insurance units including Geico.

Net income dropped 37 percent to $4.01 billion, or $2,442 a share, from $6.4 billion, or $3,889, a year earlier, the Omaha, Nebraska-based company said Friday in a statement. Operating earnings, which exclude some investment results, were $2,367 a share, compared with the average $3,038 estimate of three analysts surveyed by Bloomberg.

Why Earnings Fell at Berkshire Hathaway, but Book Value Rises in 2015 (24/7 Wall Street)

Berkshire Hathaway pointed out that, since the beginning of the year, Berkshire’s shareholder equity has increased $5.9 billion and its book value per Class A equivalent share was up by 2.4% to $149,735 per share. The company’s insurance float at June 30, 2015 was $85.1 billion. For a comparison to the first quarter book value, Berkshire Hathaway’s book value per Class A equivalent share had increased by 0.5% since the end of 2014 to $146,963 as of March 31, 2015. [...]

Operating earnings came to $3.89 billion in the second quarter, down from $4.33 billion a year ago. Gains from investments fell to $236 million, from $1.96 billion a year ago. [...]

If you add up the investment income and the operating income from the conglomerate structure, Berkshire Hathaway made $4.01 billion in net earnings, down from $6.395 billion a year earlier. [...]

Warren Buffett's Berkshire Hathaway loses millions on Australian storms (Australian Financial Review)

US billionaire Warren Buffett's Berkshire Hathaway company pointed to reinsurance losses in Australia as it explained a 37 per cent drop in second-quarter profit.

The company's American reinsurance business lost $US115 million ($155 million) directly because of storm damage on the Australian east coast in April, the company disclosed in a regulatory filing in the US. [...]

Symetra’s Deal Enriches Berkshire Hathaway (WSJ MoneyBeat)

Two insurers most people have never heard of just agreed to a deal, and Warren Buffett’s company is another $144 million richer.

U.S. life insurance company Symetra Financial Corp. said Tuesday it agreed to sell itself to Sumitomo Life Insurance Co. for about $3.8 billion in the latest large acquisition in the U.S. by a Japanese life insurer.

Among Symetra’s biggest shareholders: Mr. Buffett’s Berkshire Hathaway Inc. [...]

But Berkshire’s Symetra’s ownership, while hardly a secret, isn’t as widely known as most of its other equity positions. The stock doesn’t show up in in Berkshire’s most widely watched quarterly disclosures. Instead, it’s listed in the holdings for a Berkshire reinsurance unit, General Reinsurance Corp.

U.S. Identifies Insider Trading Ring With Ukraine Hackers (Bloomberg)

Exposing a new front in cybercrime, U.S. authorities broke up an alleged insider trading ring that relied on computer hackers to pilfer corporate press announcements and then profited by trading on the sensitive information before it became public. [...]

The suspected hackers, who are thought to be in Ukraine, allegedly infiltrated the computer servers of PRNewswire Association LLC, Marketwired and Business Wire, a unit of Warren Buffett’s Berkshire Hathaway Inc., over a five-year period.

They siphoned more than 150,000 press releases including corporate data on earnings that could be used to anticipate stock market moves and make profitable trades, the U.S. said. [...]

Can the Insurance Industry Survive Driverless Cars? (Bloomberg)

Auto insurance has long been a lucrative business. The industry collected about $195 billion in premiums last year from U.S. drivers. New customers are the source of so much profit that Geico alone spends more than $1 billion a year on ads to pitch its policies with a talking lizard and other characters. Yet even Warren Buffett, whose company, Berkshire Hathaway, owns Geico, is talking about the long-term risks to the business model. "If you could come up with anything involved in driving that cut accidents by 30 percent, 40 percent, 50 percent, that would be wonderful," he said at a conference in March. "But we would not be holding a party at our insurance company."

International Dairy Queen Opens First Location in Kuwait (Business Wire)

The Dairy Queen® system, part of Berkshire Hathaway, has opened a new DQ Grill & Chill® restaurant at the Marina Mall in Salmiya, Kuwait. The opening of this location makes Kuwait the 27th country outside the U.S. and Canada with a DQ® presence. [...]

Durra Khaled for Foodstuffs Co., a subsidiary of KMGC, has signed a long-term franchise agreement with the Dairy Queen system and plans to develop more than 20 DQ Grill & Chill restaurants and DQ Treat stores throughout Kuwait over the next five years.