Download - Warren E Buffet Case
Warren Buffet
Syndicate YP47B:Adilla Nurlina
Ayu Eka Putri Dwi Kurnia PutriIndri Yul Avianti
Siti Larissa SarasvatiYara Putri Genevera
Yulianita Rahayu
Case Overview
Berkshire Hathaway
MidAmericanWarren Buffet
PacifiCorp
Acquire
?BUFFET’S INVESTMENT
PHILOSOPHIES
Increasing Stock Price
Buffet’s Excellent Record
POSITIVE RESPOND FROM THE MARKET
Outstanding Performance of Berkshire > 24% compound stock price annual growth
Berkshire Experiences on equity investment > BIG FOUR
ONE OF THE RICHEST PEOPLE IN THE WORLD ACCORDING TO FORBES
Berkshire’s investment in MidAmerican
Company’s valuation implied by the multiples for comparable firms.
Source: Value Line Investment Survey
Enterprise Value (in million dollars)
Alliant Energy Corp. $ 5,600
Cinergy Corp. $ 13,231 NSTAR $ 5,287 SCANA Corp. $ 7,967 Wisconsin Energy Corp. $ 7,691
PacifiCorp $ 6,252 $ 9,289 Median $ 7,691 Mean $ 7,955
MV Equity(in million dollars)
Alliant Energy Corp. $ 3,333
Cinergy Corp. $ 7,989 NSTAR $ 2,898 SCANA Corp. $ 4,486 Wisconsin Energy Corp. $ 4,048
PacifiCorp $ 4,277 $ 5,904 Median $ 4,048 Mean $ 4,551
The Bid Price for PacifiCorp is not appropriate
Source: Value Line Investment Survey
PacifiCorp Value Comparable Firms
$-
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
$10,000
6252
7691
9289
7955
9400
Median Mean Bakshire's offer
The Bid Price is appropriate, NPV = $. 9257
Source: PacifiCorp Financial Results; BH Economic Projections for PacifiCorp
2006 2007 2008 2009 2010 2011 2012 2013 2014 20150
2000
4000
6000
8000
10000
12000
14000
16000
18000
Projected FCF PacifiCorp
FCF PV, i=8.08%Initial Investment NPV
The results set the value of PacifiCorp between $6,200M and $9,289M
Minimum value valuation mult
Maximum value valuation mult
Bid Price PV $-
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
$20,000
$6,252
$9,289 $9,400
$18,657
PacifiCorp Valuation($M USD, 2005)
Source: PacifiCorp Financial Results; BH Economic Projections for PacifiCorp
•Economic Reality, not accounting reality
•The cost of lost opportunity
•Value Creation: Time is money
•Measure performance by gain in intrinsic value, not accounting profit
•Risk & Discount Rates Conventional
•Diversification
•Investing behavior should be driven by information, analysis & self-discipline; not by emotion or ‘hunch’.
•Alignment of agents & owners
Buffett’s Investment Philosophy
1. Economic Reality, not accounting realityFinancial statements prepared by accountants conformed to rules that might not adequately represent the economic reality of a business. Buffett also defined economic reality at the level of business itself.
2. The cost of lost opportunity Buffet always compares his choice with another best opportunity. Buffet considering the cost of loosing the other opportunity. This includes not only the money spent in buying that asset but also the economic benefits that one has to do without.
Buffett’s Investment Philosophy
3. Value Creation: Time is moneyBuffett defined intrinsic value as the discounted value of the cash that can be obtained from a business during its remaining life. We should really pay attention to the business future potential growth, not the amount of investment that we put.
4. Measure performance by gain in intrinsic value, not accounting profit Buffett does not measure the economic significance or performance of Berkshire by its size, but by per-share progress.
Buffett’s Investment Philosophy
5. Risk & Discount Rates Conventional His company used almost no debt financing, the idea of a risk factor does not make sense to him so that he utilized a “risk-free” discount rate
6. DiversificationInvestors should pay attention to only businesses that they understand. Buffet believed that it is not necessary to diversify if the objectives is only for spreading away investment risks.
Buffett’s Investment Philosophy
7. Investing behavior should be driven by information, analysis & self-discipline; not by emotion or ‘hunch’. It would be wiser for investors to form their own ideas of the value of their holdings, based on full reports from the company about its operation and financial status.
8. Alignment of agents & owners He is a better businessman because he is an investor. And he is a better investor because he is a businessman
Buffett’s Investment Philosophy
“Bekshire should acquire PacifiCorp, a bid price of $9,400 is appropriate”
• Buffet Records:– Berkshire’s performances have been outstanding– Berkshire Hathaway’s “Big Four”– Berkshire’s investment in MidAmerican, IRR:71%
• DFC method, NPV: $9,272, almost twice bid price.• Buffet Investment Philoshophy.• The successful of Warren E. Buffett:– a combination of a good calculation, the courage, and
patience in investing in the right time