Investment Evaluation of Pacific Corp by Berkshire Hathaway in 2005

Running head: FINANCE
Warren E Buffet 2005
Name of the Student:
Name of the University:
Author’s Note:

1WARREN E BUFFET
Table of Contents
In Response to Question 1...............................................................................................................2
In Response to Question 2...............................................................................................................3
In Response to Question 3...............................................................................................................5
In Response to Question 4...............................................................................................................7
In Response to Question 5...............................................................................................................8
In Response to Question 6...............................................................................................................9
In Response to Question 7.............................................................................................................10
Reference.......................................................................................................................................11
Appendix........................................................................................................................................13

2WARREN E BUFFET
In Response to Question 1
The acquisition of Pacific Corp by Berkshire Hathaway subsidiary company
MidAmerican Energy Holdings was done on May 24, 2005. The Berkshire Hathaway
Incorporation through its investment company MidAmerican Energy Holdings Company did the
acquisition. The parent company for the Pacific Corp was the Scottish Power plc, for an all 9.4
billion, which was a mix of debt and equity. The stock market took this acquisition as a positive
news for the Berkshire Hathaway Incorporation where the shares of the company rose by around
2.4% for that day when the acquisition was announced which represented an all-total rise of 2.55
billion dollars in the market value of the company (Peterson and Malko 2015).
The Berkshire Hathaway was having more than around 43 billion dollars of its
investment parked in Cash and Cash equivalents that were not earning sufficient for the investors
and stakeholders. Since the year 2001, it is crucial to note that the company was in search of
some potential investments that could bring potential source of revenue generation for the
company. The company was in search of an elephant i.e.., a company or an industry where the
investment done by the company is viable and the same was done by the company when the
company found that in the year 2004 (Sunderasan 2015). The return the Berkshire Hathaway saw
in the Energy Industry was lucrative and especially the company Pacific Corp was one of the
lucrative company. The company had some key feature such as it was one of the leading in terms
of market share; the low cost output and the 1.6 million-customer base were some of the key
feature. The company would create value for the MidAmerican Energy Holding Company,
which in turn will create the value for the Berkshire Hathaway company through the sources of
the investment done in the company. The Berkshire Company was having an ideal amount of

3WARREN E BUFFET
investment to be deployed put in cash and cash equivalents however; the company due to scarce
investment asset class could not utilize the same (Aggarwal and Burgess 2014).
The 2.54 billion dollar increase in the market value of the Berkshire Hathaway Company
was seen when the company announced for the second biggest acquisition of the company for
about 9.4 billion dollars. The same would solve the problem of the Berkshire Hathaway
Company that the same was faced because of the pilling amount in the cash and cash equivalents
of the company since the year2011. The company found the lucrative energy sector company
Pacific Corp Company that was one of the lucrative company due to its presence in the major 6
states of the United States. The company along with the strong customer’s base and low cost
output along with the rising and better trade off profitability feature provided the company to
acquire the Pacific Corporation Company.
2004 2005
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Pacifi c Corporation
Net Income Shareholder' Equity
Figure 1: Pacific Corporation Financials
In Response to Question 2
The choice of valuation method selected for the valuation of PacifiCorp was the use of
Earnings Multiple method and the valuation approach gives us the pricing and valuation of the
company in terms of the different components of the financial statements. Yes after the financial