Warren E.

Buffett, 2005
Case Studies in Finance

The case study describes the acquisition of PacifiCorp, a low-cost energy product and
distribution company in the United States, by MidAmerica Energy Holding Company,
a subsidiary of Berkshire Hathaway, Inc.
Warren Buffet, the CEO of Berkshire Hathaway, Inc, is known for his very successful
investment portfolio. Indeed, throughout the past couple of decades he has managed to
achieve a 24% annual growth in shareholder equity in the corporation.
Buffet’s unique way of investing has allowed him to add several thriving companies
to his portfolio. From insurance, apparel, building products or even grocery
distribution… Buffet’s diverse acquisition has allowed Berkshire Hathaway to be
engaged in a number of business activities, whilst still keeping a rising stock price.
The CEO’s philosophy is simple: focus on the Economic reality rather than the
accounting reality. He uses the gain in intrinsic value in measuring a company’s
performance and utilizes information, analysis and self-discipline to find exceptional
companies worth his investment. An approach which he accredits to his mentor and
his college professor Ben Graham the father of value investing.
However, Berkshire’s 24% annual growth in shareholder wealth is proving to be
difficult to maintain. Thus, leading them to make the acquisition of PacifiCorp with a
$5.1 billion cash offer.

1- Would the PacifiCorp acquisition serve the long-term

goals of Berkshire Hathaway?
I believe that the acquisition of PacifiCorp would serve well the long-term goals of the
corporation. As it is in line with the goals and the views of its subsidiary MidAmerica
Energy Holding Company. In addition, PacifiCorp’s 1.6 million customers in six
states is a great way to reach the Western region of the United States.

2- Was the bid price appropriate?

Based on Exhibit 10 the multiples for comparable regulated utilities, we notice that
$9.4 billion is more than both the range of enterprise values ($6.252 – 9.289) and the
range of possible market values ($4.277 - $5.904).

El Yazidi Youssef
FIN470 – Case Studies in Finance
Fall 2020
However, knowing Warren Buffet’s philosophy, we can deduce that PacifiCorp’s
intrinsic value must be worth more than its cost. Which would justify the bid price.

3- Because PacifiCorp was privately held by Scottish

Power, how did Berkshire’s offer measure up against
the company’s valuation implied by the multiples for
comparable firms?
Since PacifiCorp was a privately held company that does not pay a dividend, we
cannot use the dividend discount model. Exhibit 10 however, shows that PacifiCorp is
well above the mean and the median of the enterprise value multiple.

4- What might account for the share price increase for

Berkshire Hathaway at the announcement?
The share price increased due to the announcement of the acquisition as it was known
to the public that Buffet was looking for an “elephant”.
The stock market then reacted towards this acquisition positively knowing that
PacifiCorp would have good future earnings and could enhance the performance of
Berkshire Hathaway as well.

El Yazidi Youssef
FIN470 – Case Studies in Finance
Fall 2020