Warren Buffet

In preparing to discuss this case, please pay particular attention to the issues described below. Of course, feel free to consider and evaluate any other issues that come to mind as well; the point of this list is to alert you to things that I am particularly likely to ask you to discuss in class.

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 $2.17-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. How well has Berkshire Hathaway performed? How well has it performed in the aggregate? What about its investment in MidAmerican Energy Holdings?

4. What is your assessment of Berkshire’s investment in Buffett’s “Big Four”: American Express, Coca-Cola, Gillette, and Wells Fargo?

5. From Warren Buffett’s perspective, what is “intrinsic value?” Why is it accorded such importance? How is it estimated? What are the alternatives to intrinsic value? Why does Buffett reject them?

6. Critically assess Buffett’s investment philosophy. Be prepared to identify points where you agree and disagree with him.

7. Suppose I were to evaluate your analysis to this point as follows: “One area where Buffett agrees with modern finance theory is his belief in discounted cash flow analysis. Therefore, the market multiple analysis in question 2 above is a waste of time.” How would you respond?

8. Should Berkshire shareholders endorse the acquisition of PacifiCorp?