Stock Market and Berkshire Hathaway

1.What is the possible meaning of the changes in stock price for Berkshire Hathaway and Scottish Power plc on the day of the acquisition announcement? Specifically, what does the $2.55 billion gain in Berkshire’s market value of equity imply about the intrinsic value of PacifiCorp? 2.Based on the multiples for comparable regulated utilities, what is the range of possible values for PacifiCorp? What questions might you have about this range? 3.Assess the bid for PacifiCorp. How does it compare with the firm’s intrinsic value?

As an alternative, the instructor could suggest that students perform a simple discounted cash-flow (DCF) analysis. 4.How well has Berkshire Hathaway performed? How well has it performed in the aggregate? What about its investment in MidAmerican Energy Holdings? 5.What is your assessment of Berkshire’s investments in Buffett’s Big Four: American Express, Coca-Cola, Gillette, and Wells Fargo?

6.From Warren Buffett’s perspective, what is the intrinsic value? Why is it accorded such importance? How is it estimated? What are the alternatives to intrinsic value? Why does Buffett reject them? 7.Critically assess Buffett’s investment philosophy. Be prepared to identify points where you agree and disagree with him. 8.Should Berkshire Hathaway’s shareholders endorse the acquisition of PacifiCorp?

1.What does the stock market seem to be saying about the acquisition of PacifiCorp by Berkshire Hathaway? 2.Based on your own analysis, what do you think PacifiCorp was worth on its own before its acquisition by Berkshire? 3.Do you think Buffett is overpaying?

4.Here are the major elements of Buffett’s philosophy. What do those elements mean? Do you agree with them? 5.Let’s return to the basic issue. Is the PacifiCorp acquisition a good or bad deal? Why?