Deals and IPOs

Warren Buffett: Precision deal 'very high multiple'

Warren Buffett: Precision deal 'very high multiple'
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Berkshire Hathaway, the conglomerate owned by billionaire Warren Buffett, announced plans Monday to acquire aircraft equipment maker Precision Castparts in deal valued at $37.2 billion, including debt.

Buffett told CNBC's "Squawk Box" he made a bid for Precision during the Allen & Co. Sun Valley conference last month. "This is right up there at the top" of expensive deals, he said. "This a very high multiple for us to pay."

Berkshire's offer of $235 per share is a premium of 21.2 percent to Precision's Friday close of $193.88. Berkshire already owned 3 percent of the company, and is its largest shareholder.

"We'll probably borrow about $10 billion and use about $23 billion of our cash," Buffett said.

Precision's stock price zoomed more than 19 percent in premarket trading Monday. Berkshire's was down slightly.

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Buffett said the deal started with his portfolio manager Todd Combs, who manages $9 billion. "Three or so years ago, he added Precision to his portfolio. I had never really heard of the company before that."

Founded in 1949, Oregon-based Precision makes components such as fasteners and turbine blades for aircraft companies including Airbus and Boeing, and has annual sales of $10 billion. It also makes equipment for power stations and the oil-and-gas industry.

"We're going to be in this business for the next 100 years," Buffett said. "Perhaps a slump in oil and gas has helped us in this case." But over the long-term, energy prices do not matter in terms of this deal.

PCC will remain headquartered in Portland and will be a wholly owned subsidiary of Berkshire. Mark Donegan, PCC's chairman and chief executive officer, will continue to run the business. "Mark is running this company," Buffett said.

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As for as Berkshire going forward, Buffett said, "This takes us out of the market for an elephant," referring to a big deal of this size.

"We'll be left with over $40 billion probably of cash when we get all through [with PCC]. But I like to have a lot of cash at all times. This means we have to reload over the next 12 months or so," he said.

He added, however, that he will probably make some smaller deals in the next six months.

Berkshire said Friday second-quarter profit fell 37 percent, reflecting a significant decline in investment gains and an underwriting loss from insurance.

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CNBC's Javier David and Reuters contributed to this report.