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Valuation Of Precision Castparts

Published 10/20/2015, 01:26 AM
Updated 07/09/2023, 06:31 AM

On August 10, 2015, Berkshire Hathaway and Precision Castparts issued a joint press release announcing that the boards of directors of Berkshire Hathaway Inc. (N:BRKa) and Precision Castparts Corp. (NYSE: N:PCP) have unanimously approved a definitive agreement for Berkshire Hathaway to acquire, for $235 per share in cash, all outstanding PCP shares. The transaction is valued at approximately $37.2 billion, including outstanding PCP net debt.

In a notice (dated October 13, 2015) of a special meeting to PCP shareholders to be held on November 19, 2015 to vote on this proposal, PCP’s financial advisor, Credit Suisse (VX:CSGN), provides a valuation of the company by performing (1) a comparable multiples analysis, (2) a comparable transactions analysis, and (3) a discounted cash flow analysis.

(1) Comparable Multiples Analysis – Taking into account the results of the selected companies analysis, Credit Suisse applied multiple ranges of 10.0x to 11.0x to PCP’s CY 2015E EBITDA and 9.0x to 10.0 x to PCC’s CY 2016E EBITDA. The selected companies analysis indicated an implied valuation reference range of $180 to $203 per share of PCP as compared to the proposed merger agreement of $235 per share.

(2) Comparable Transactions Analysis – Taking into account the results of the selected transactions analysis, Credit Suisse applied a multiple range of 11.5x to 13.5x to PCP’s last 12 months EBITDA as of June 28, 2015. The selected transactions analysis indicated an implied valuation reference range of $218 to $260 per share of PCP as compared to the proposed merger agreement of $235 per share.

(3) Discounted Cash Flow Analysis – Credit Suisse performed a discounted cash flow analysis of PCP by calculating the estimated net present value of the projected after-tax, unlevered free cash flow of PCP based on company forecasts. Credit Suisse applied a range of terminal value multiples of 9.5x to 10.5x to PCP’s estimated FY 2021E EBITDA of $4.21 billion and discount rates ranging from 7.0% to 9.0%. This analysis indicated an implied valuation reference range of $215 to $256 per share of PCP as compared to the proposed merger agreement of $235 per share.

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