Warren E Buffett, 2005 Essay

7781 Words Sep 23rd, 2012 32 Pages
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WARREN E. BUFFETT, 2005

On May 24, 2005, Warren E. Buffett, the chairperson and chief executive officer (CEO) 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 energy sector has long interested us, and this is the right fit,” Buffett said. At the announcement, Berkshire Hathaway’s Class A shares closed up 2.4% for the day, for a gain in market value of $2.55
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In 1977, the firm’s year-end closing share price was $102; on May 24, 2005, the closing price on its Class A shares reached $85,500. Over the same period, the Standard & Poor’s 500 Index grew from 96 to 1,194. Some observers called for Buffett to split5 the firm’s share price to make it more accessible to the individual investor. He steadfastly refused.6 In 2004, Berkshire Hathaway’s annual report described the firm as “a holding company owning subsidiaries engaged in a number of diverse business activities.”7 Berkshire’s portfolio of businesses included: • • Insurance: The largest component of Berkshire’s portfolio focused on property and casualty insurance, on both a direct and a reinsurance basis (for example, GEICO, General Re). Apparel: Manufacturing and distribution of a variety of footwear and clothing products, including underwear, active-wear, children’s clothes, and uniforms (for example, Fruit of the Loom, Garan, Fechheimer Brothers, H.H. Brown Shoe, Justin Brands). Building products: Manufacturing and distribution of a variety of building materials, and related products and services (for example, Acme Building Brands, Benjamin Moore, Johns Manville, MiTek). Finance and

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