Berkshire Hathaway Case Study
Berkshire Hathaway Inc. to: William Cochran from: subject:
Pacificorp Acquistion analysis and recommendation date: The following memo analyzes MidAmerican’s potential acquisition of PacifiCorp. Contents included involve a financial analysis, qualitative analysis, valuation, and acquisition recommendation. After careful review, MidAmerican should acquire PacifiCorp at the current offering price of $9.4 billion ($5.1 billion in cash and $4.3 billion in attached liabilities and preferred stock).
Financial Analysis The financial statement comparison between MidAmerican and PacifiCorp reveals similarities, but there are key differences. Between 2000 and 2004, MidAmerican’s assets have doubled reaching nearly $20 billion. PacifiCorp has also increased the total amount of assets to $12.5 billion between 2004 and 2005. Both companies have consistently increased the amount of liability, which Berkshire Hathaway is not usually known for. Between 2000 and 2002, MidAmerican increased liabilities from $5 billion to over $10 billion. Differences surface when comparing the income statements. While MidAmerican has consistently increased revenues over the years, PacifiCorp has not in the two years of information provided. MidAmerican has increased from $4 billion to over $6.5 billion. PacifiCorp has struggled, decreasing revenues by approximately $150 million. Both MidAmerican and PacifiCorp’s costs and expenses have trended consistently with revenues. PacifiCorp seemed to outperform MidAmerican in 2004 reporting net income of $252 million. MidAmerican unfortunately had a significant loss on discontinued operations of over $350 million. The following table shows the financial similarities and differences in more detail.
MidAmerican
2000
2001
2002
2003
2004
PacifiCorp
2004
2005
Assets
$11,681
$12,626
$18,435
$19,145
$19,904
Assets
$11,677
$12,521
Liabilities
$10,105
$10,918
$16,141
$16,374
$16,933
Liabilities
$8,357
$9,144
Revenue
Pacificorp Acquistion analysis and recommendation date: The following memo analyzes MidAmerican’s potential acquisition of PacifiCorp. Contents included involve a financial analysis, qualitative analysis, valuation, and acquisition recommendation. After careful review, MidAmerican should acquire PacifiCorp at the current offering price of $9.4 billion ($5.1 billion in cash and $4.3 billion in attached liabilities and preferred stock).
Financial Analysis The financial statement comparison between MidAmerican and PacifiCorp reveals similarities, but there are key differences. Between 2000 and 2004, MidAmerican’s assets have doubled reaching nearly $20 billion. PacifiCorp has also increased the total amount of assets to $12.5 billion between 2004 and 2005. Both companies have consistently increased the amount of liability, which Berkshire Hathaway is not usually known for. Between 2000 and 2002, MidAmerican increased liabilities from $5 billion to over $10 billion. Differences surface when comparing the income statements. While MidAmerican has consistently increased revenues over the years, PacifiCorp has not in the two years of information provided. MidAmerican has increased from $4 billion to over $6.5 billion. PacifiCorp has struggled, decreasing revenues by approximately $150 million. Both MidAmerican and PacifiCorp’s costs and expenses have trended consistently with revenues. PacifiCorp seemed to outperform MidAmerican in 2004 reporting net income of $252 million. MidAmerican unfortunately had a significant loss on discontinued operations of over $350 million. The following table shows the financial similarities and differences in more detail.
MidAmerican
2000
2001
2002
2003
2004
PacifiCorp
2004
2005
Assets
$11,681
$12,626
$18,435
$19,145
$19,904
Assets
$11,677
$12,521
Liabilities
$10,105
$10,918
$16,141
$16,374
$16,933
Liabilities
$8,357
$9,144
Revenue