On May 24, 2005, Warren Buffett, the chair and chief executive officer of Berkshire Hathaway Inc., announced that MidAmerican Energy Holdings Company, a subsidiary of Berkshire Hathaway, would acquire the electric utility PacifiCorp. In Buffett’s largest deal since 1998, and the second largest of his entire career, MidAmerican would purchase PacifiCorp from its parent, Scottish Power plc, for $5.1 billion in cash and $4.3 billion in liabilities and preferred stock.
The acquisition of PacifiCorp renewed public interest in its sponsor, Warren Buffett. In many ways, he was an anomaly. What were the key principles that guided Buffett? Could these be broadly applied in the 21st century, or were they unique to Buffett and his time? From an understanding of these principles, analysts hoped to illuminate the acquisition of PacifiCorp. What were Buffett’s probable motives in the acquisition? What did Buffett’s offer say about his valuation of PacifiCorp, and how would it compare with valuations for other regulated utilities? Would Berkshire’s acquisition of PacifiCorp prove to be a success? How would Buffett define success? Focus:
To examine valuation of PacifiCorp and determine if a proposed merger will be a success. The current owner of PacifiCorp, ScottishPower, is a multinational corporation that has expressed interest in selling PacifiCorp, and which has itself been under threat of takeover. The end result of the MidAmerican case might have looked very different had PacifiCorp been a stand-alone company — our approach to it would certainly have been different. In this case, however, the choice was between the current international corporate holding company and a potential national holding company