...Warren E.Buffett, 1995 一、個案簡介 1995 年 8 月 25 日，Berkshire Hathaway 公司的執行長華倫˙巴菲特將收購 GEICO 公司尚未取得的 49.6%股權，並以高於市價 26%，每股 70 美元的價格溢 價收購，震驚市場。雖無法證明此項收購案對 Berkshire Hathaway 有任何實質 上的貢獻，但其股價立刻上揚，市值也顯著增加。 關於華倫˙巴菲特 一位名聲顯赫的投資奇才，締造出有史以來最佳的投資績效(1965~1994 平 均報酬率為 28%)。一旦投資錯誤便迅速對外承認，和作為一位優秀的執行長， 其低調和不凡的風範獲得許多人的愛戴。在哥倫比亞大學就讀碩士期間，發展出 一套價值投資法的哲學，不同於一般商管學校所教授的財務投資理論，並是他能 夠獲得非凡成就的主因。 巴菲特的投資哲學 價值投資法的基礎在於尋找出價值被低估的股票，巴菲特在哥倫比亞大學時 期首次接觸到這個概念，備將此法予以調整，把其他市場未明確給定價值的各項 因素皆包括進價值評估範圍內，如經銷權、品牌資產等。 Berkshire Hathaway 公司形容自身為“一間擁有多元化業務分支機構的控股公司”，涵蓋的業務群 有保險事業、報社、衣料、家庭用品、傢具、糖果批發商等。Berkshire Hathaway 採取相當嚴格的併購策略，列出多項標準，比如必須展現長期的營利能力、沒有 負債、自主管理、給定的價格等。 GEICO 為一家保險公司，Berkshire Hathaway 持續的收購 GEICO 的股票，雖有受 到通貨膨脹及意外率上升的負面影響，但整體而言有不斷的成長。巴菲特提出三 點作為收購 GEICO 的理由：其一，GEICO 為美國第七大汽車保險業者；其二， 資深經理人的投資型態與巴菲特相近，可望在未來延續公司的一貫性；最後，為 該產業中成本最低者。 二、分析與討論 1. Berkshire Hathaway 投資 GEICO 後，因為市場訊息不對稱，當日股價即上 揚 2.4%，公司整體市值的上升也是此項投資帶來的正面影響。此外，本組推斷 巴菲特雖無執行重大實際改革 GEICO 的計畫，卻願意付出 26% 溢價的原因還有 兩個。一為 GEICO 本身的隱含價值，即其剩餘 49.6%股權的價值與當時實際股 價相比，金額更高，所以 Berkshire Hathaway 願意以溢價收購，反映此公司的 真實股價。二為 Berkshire Hathaway 本身在購買剩餘股票前已經持有 GEICO 的 50.4%股權，當其買下剩餘股票時，原先其所持有的股票價值實質也具有 premium，可藉此拉抬 50.4%本身持有的價值。綜合以上兩點，推得 Berkshire Hathaway 既覺得買進的股票確有其價值，買進本身已持有股份公司的剩餘股票 拉抬本身股票，也能夠為本身股票增值，有一舉兩得的效果。 而由訊息公布後市值的增長高達 7 億 1,800 萬美元，我們可藉由以下算式推 估 GEICO 的隱含價值 P： 718 Million = [34.25 Million × ($70 − $55.75) ] + [67.9 Million × (P − $70)] 得 P 為 73.38641。也就是 Berkshire Hathaway 以超乎市場行情的價格買下 GEICO 剩餘股票，相當於對市場送出訊息，表示他們認為 GEICO 當下股價是被 低估的，而同時市場對此事的反應讓 GEICO 的隱含價值達每股 73.38641...
Words: 774 - Pages: 4
...Warren Buffet Warren Buffet was born August 30, 1930 in Omaha, Nebraska. He lived much of his life in Nebraska and later moved to Washington D.C. At 11 he purchased his first stock which he ended up making a five-dollar profit on this investment. He got his bachelors degree from The University of Nebraska. For some time he attended Wharton’s School of Finance at the University of Pennsylvania. This institution is rated as one of the top five business schools in the nation. His Masters of Science in Economics was completed at Columbia University.... [tags: Berkshire Hathaway] 338 words (1 pages) FREE Essays [view] Warren Buffet - Warren Buffet Warren Buffet of Berkshire Hathaway and His Investment Strategy Warren Buffet is arguably the most successful investor of all time. His initial investment of $105,000 in the beginning, ultimately grew into a $16 billion dollar fortune made from his trading company, Berkshire Hathaway. If you had invested $10,000 in Berkshire Hathaway when he took over the company in 1965, it would be worth $22,000,000 today. Warren’s stockpicking prowess however, is what he is know for and is also why Berkshire Hathaway has had a returning average of 24% a year for the last three decades.... [tags: GCSE Business Marketing Coursework] :: 3 Sources Cited 551 words (1.6 pages) $14.95 [preview] Case Study of Warren E. Buffet - Case Study of Warren E. Buffet In 1995 Berkshire Hathaway has made a bid for the shares of GEICO. This report reviews the...
Words: 492 - Pages: 2
...Case 1: Warren Buffett 1995 Question 1: Warren Buffett's (Buffett) track record as a value investor and sheer financial strength has earned him an incredibly valuable reputation within the financial industry. Being an anomaly in the investment world; when he talks – the market follows. This is noticeably seen in the increase in equity of $718 million. ------------------------------------------------- Question 2: GEICO Outstanding shares April 30, 1995: 67.89 million, of which 34.22 million owned and 33.67 million purchased at $70; total price $2.3 billion. A Capital Asset Pricing Model (CAPM) derived cost of equity equaled 10.99% percent via a risk-free rate of 6.86 percent, a beta of 0.75, and an equity risk premium of 5.5 percent. k = 6.86 + 0.75 ((5.5)) = 10.99% Using Value Line’s forecast & the above discount rate and share information: the following low end & high end NPV are calculated: Low end: -$335.57 High end: $389.89 For methodology in calculation of intrinsic value refer to ‘1995-Question 2’ in the accompanying “excel“spreadsheet for the analysis. Using Value lines cost of equity; the investment yields a negative Net Present Value (NPV) on the low end. The investment will not add value to the firm and the acquisition of GEICO doesn’t seem to be a good one. The high end range yields a positive NPV showing the investment rather is rather a prudent one. The discount rate used is highly subjective and is influenced by the risk premiums chosen...
Words: 902 - Pages: 4
...BERKSHIRE HATHAWAY PURCHASES GEICO WARREN BUFFET Executive Summary Berkshire Hathaway has made a bid for the remaining portion of GEICO stock. This report reviews the offer initiated by Warren Buffett. The details of this report include: • Valuation of GEICO stock. The $70 offer made by Warren Buffett and Berkshire Hathaway includes a 26% premium over the current GEICO stock price of $55.75. This report attempts to determine a range of appropriate stock prices for GEICO. Using the Gordon dividend discount model, along with historical dividend information and projections by Value Line, we estimate the value of GEICO stock in the range of $58 to $80. A review of historical growth rates in GEICO dividends also lends credibility to the investment’s future potential. • Review of Warren Buffett’s investment record. While our analysis lends credence to the bid price of $70 per share for GEICO, we also examine the historical record of Warren Buffett. Buffett’s investment success may add to shareholder’s comfort, as his track record is remarkable when compared to broader market results. • Buffett’s investment philosophy. A letter to shareholders gives us a unique look at Buffett’s considerations for investing. By reviewing his checklist, we attempt to gain insight as to why such a premium is included in the GEICO offer. • Other issues. Buffett’s position on GEICO’s board of directors may shed light on the amount of information Buffett had about the future prospects of GEICO. At first...
Words: 3090 - Pages: 13
...Individual Assignment BERKSHIRE HATHAWAY Assignment Report Submitted by: Sudipt Tewari | G13051 | Case Summary: Berkshire Hathaway, Inc.’s chairman and CEO Warren Buffett, is the world's third richest man. He invested in Berkshire Hathaway in 1962, and by 1963, Buffett was Berkshire’s largest shareholder. Buffett started purchasing other businesses, which were primarily insurance companies, with profits from the declining original textile business. In 1985, the original textile business was shut down and Berkshire Hathaway diversified into higher margin businesses. Now, Berkshire Hathaway is active in a variety of sectors, including insurance, regulated utilities and retailing. One of the companies that Berkshire Hathaway holds is GIECO (Government Employees Insurance Company). In 1995, GIECO was wholly owned by Berkshire Hathaway. By 2005, its market share was increased from 1.9 percent to 6.1 percent with underwriting revenues of additional $590 million in cash from operating earnings in spite of decline in insurance industry. Another major company under Berkshire Hathaway is Nebraska Furniture Mart. It is a large furniture store, which holds NFM Mega Mart and Homemakers Furniture. Warren Buffett utilizes a constant strategy to manage these companies including Berkshire Hathaway by holding shares for a long time. Berkshire Hathaway does not pay any dividends to the shareholders but reinvests surplus instead to maximize the value of the company. Under this strategy...
Words: 800 - Pages: 4
...Study 2: Warren E. Buffett, 1995 This case was prepared by Professor Robert F. Bruner as the basis for classroom discussion rather than to illustrate effective or ineffective handling of an administrative situation. On August 25, 1995, Warren Buffett, the CEO of Berkshire Hathaway, announced that his firm would acquire the 49.6 percent of GEICO Corporation that it did not already own. The $2.3 billion deal would give GEICO shareholders $70.00 per share, up from the $55.75 per share market price before the announcement. Observers were astonished at the 26 percent premium that Berkshire Hathaway would pay, particularly since Buffett proposed to change nothing about GEICO, and there were no apparent synergies in the combination of the two firms. At the announcement, Berkshire Hathaway’s shares closed up 2.4 percent for the day, for a gain in market value of $718 million.1 That day, the Standard & Poor’s 500 index closed up 0.5 percent. The acquisition of GEICO renewed public interest in its architect, Warren Buffett. In many ways he was an anomaly. One of the richest individuals in the world (with an estimated net worth of about $7 billion), he was also respected and even beloved. Though he had accumulated perhaps the best investment record in history (a compound annual increase in wealth of 28 percent from 1965 to 1994),2 Berkshire Hathaway paid him only $100,000 per year to serve as its CEO. Buffett and other insiders controlled 47.9 percent of the company, yet Buffett ran...
Words: 6381 - Pages: 26
...Berkshire Hathaway and GEICO Insurance © 2001 Tim Glowa September 12, 2001 -1- White Paper: Examining Berkshire Hathaway’s 1995 Purchase of GEICO Insurance Tim Glowa Tim@Glowa.ca September 12, 2001 © 2001 Tim Glowa Berkshire Hathaway and GEICO Insurance © 2001 Tim Glowa September 12, 2001 -2- Table of contents Executive Summary.................................................................................................... 3 Introduction................................................................................................................. 4 Review of the case: Berkshire Hathaway purchasing GEICO.................................... 4 Strategic Outcome....................................................................................................... 7 Finance........................................................................................................................ 7 Time Value of Money................................................................................................. 8 Assessment of the GEICO purchase........................................................................... 8 Time value of money ................................................................................................ 11 An examination of the GEICO acquisition in hindsight........................................... 13 Limitations of Discounted Cash Flow .........................................................................
Words: 726 - Pages: 3
...Berkshire Hathaway AFIN250 Monday 5pm Christopher Lam 43820832 Savneet Kambo 44677987 Jason Weng 43885772 Table of Contents Executive Summary ............................................................................................................................2 Culture, a catalyst for Berkshire’s success ...........................................................................................2 Heir to Berkshire Hathaway ...............................................................................................................3 Graham & Dodd valuation model .......................................................................................................3 Bruner’s Disaster Framework, a risk assessment tool ..........................................................................4 Diversification of Berkshire Hathaway ................................................................................................5 Volatility timing .................................................................................................................................6 Conclusion .........................................................................................................................................7 Appendix ...........................................................................................................................................8 Reference ..........................................................................
Words: 3371 - Pages: 14
...Warren Buffett and Gillette Background of the Active Investor Warren Buffett is known as one of the world’s most notable investors. He is a self-made investor, now worth billions of dollars. Buffets premise is that people should base their investing on common sense and search out assets that are selling for less than they are worth (Pardoe, 2005). At an early age Buffett had a knack for making money. At six year old, Buffett made a five cent profit by purchasing a six-pack of Coca-Cola for twenty-five cent and reselling each bottle for a nickel. At eleven, he purchased three shares of Cities Service at $38 per share. Shortly after buying the stock, it fell to just over $27 per share (Kennon). When the shares rebounded to $40 he sold the shares, but regretted his actions when the shares shot up to $200. The experience taught him that patience is a virtue (Kennon). Buffett was a graduate of the University of Nebraska-Lincoln. Some time after graduation, Buffett had the opportunity to work for his mentor, Ben Graham, on Wall Street. There, he spent his day analyzing S&P reports, searching for investment opportunities (Kennon). He took a different interest than that of his mentor, he became interested in how a company worked, what made it superior to competitors and observed how the company was managed when deciding to invest; he was not interested in the corporate leadership of the companies he researched and invested in. In the mid-1950’s Buffett aligned himself...
Words: 3463 - Pages: 14
...Case 2: Warren E. Buffett. Berkshire Hathaway Question 1: The possible meaning of the change in the stock price of Berkshire Hathaway on the day of the announcement is that the shares of GEICO were undervalued at a price of $55,75 and Berkshire Hathaway paid a $14,25 premium per share. However, even though Berkshire Hathaway paid $70 per share, that price was lower than the fair value of GEICO but the shareholders couldn’t turn the offer down. Consequently, Berkshire Hathaway increased it’s market value by $718 millions because the intrinsic value of GEICO was higher than the price it was sold for. The company had outstanding 1,177,750 shares and on august 25 BH share price changed by positive $609.60. At the end of the session, the price was $25,400. 1,117,750 * 609.60 = 717,956,400 gain. In addition, BH already owned 50.4% of GEICO. GEICO had on april 30 1995 a total of 67,889,574 shares outstanding. BH is buying 49.6% of the total outstanding shares: 67,889,574 * 49.6% = 33,673,229 shares Before the acquisition, BH had a value of Total shares * opening price 1,177,750*24,790.40= $29,196.89 million And GEICO had a value of 33,673,229*55.75=$1,877.28 million Resulting to the BH+GEICO = 29,196.89+1,877.28 = $31,074.17 million After the acquisition, BH had a value of Total shares*closing price 1,177,750*25,400= $29,914.85 million And GEICO had a value of 33,673,229*70=$2357.13 Resulting to the total BH+GEICO = 29,914.85+2357.13 = $32,271.98 million and...
Words: 580 - Pages: 3
...Case Study of Warren E. Buffet In 1995 Berkshire Hathaway has made a bid for the shares of GEICO. This report reviews the offer made by Warren Buffet and will try to prove that the acquisition of GEICO will serve the long-term goal of Berkshire Hathaway and the bid price was appropriate. Furthermore, it will explain what may have caused for the share price increase for Berkshire Hathaway at the announcement of GEICO’s acquisition. Would the GEICO acquisition serve the long-term goals of Berkshire Hathaway? In 1976, Warren Buffet paid $45.7 million for 34.25 shares of GEICO. Review of GEICO’s historical dividends shows that GEICO has been a very profitable investment for Berkshire Hathaway. The growth rate for 1994 is a sharp increase, but even if the growth rate for 1994 is not considered, GEICO’s historical increase in dividends has been considerably high so that acquisition of GEICO will serve the long-term goals of Berkshire Hathaway. What might account for the share price increase for Berkshire Hathaway at the announcement? Review of Warren Buffet’s historical investment success might explain the increase in share price for Berkshire Hathaway at the announcement. Given that he has had a good track record, it is expected that shareholders respond positively. In 1977, the price of Berkshire Hathaway was $89 closing at $25,400 by 1995, an unparalleled annual growth of 37.7%. In comparison, the growth rate of the S&P...
Words: 1725 - Pages: 7
...Bill Gates III is an american business magnate, investor, philanthropist, and author. Gates is the former CEO and current chairman of microft the software company he founded with Paul Allen. He is consistently ranked among the world’s wealthist people and was the wealthiest overall from 1995 to 2009, excluding 2008, when he was ranked third, in 2011 he was the wealthiest American and the second wealthiest person. During his career at Microsoft, Gates held the positions of CEO and chief software architect and remains the largest individual shareholder, with 6.4 percent of the common stock. Gates is one of the best-known entrepreneurs of the personal computer revolution. Gates has been criticized for his business tactics, which have been considered anti-competitive, an opinion which has in some cases been upheld by the courts. In the later stages of his career, Gates has pursued a number of philanthropic endeavors, donating large amounts of money to various charitable organizations and scientific resear Microsoft's basic was popular with computer hobbyists, but Gates discovered that a pre-market copy had leaked into the community and was being widely copied and distributed. In February 1976, Gates wrote an Open Letter to Hobbyist in the MITS newsletter saying that MITS could not continue to produce, distribute, and maintain high-quality software without payment. This letter was unpopular with many computer hobbyists, but Gates persisted in his belief that software developers...
Words: 586 - Pages: 3
...UVA-F-1483 Version 2.3 WARREN E. BUFFETT, 2005 On May 24, 2005, Warren E. Buffett, the chairperson and chief executive officer (CEO) of Berkshire Hathaway Inc., announced that MidAmerican Energy Holdings Company, a subsidiary of Berkshire Hathaway, would acquire the electric utility PacifiCorp. In Buffett’s largest deal since 1998, and the second largest of his entire career, MidAmerican would purchase PacifiCorp from its parent, Scottish Power plc, for $5.1 billion in cash and $4.3 billion in liabilities and preferred stock. “The energy sector has long interested us, and this is the right fit,” Buffett said. At the announcement, Berkshire Hathaway’s Class A shares closed up 2.4% for the day, for a gain in market value of $2.17 billion.1 Scottish Power’s share price also jumped 6.28% on the news2; the S&P 500 Composite Index closed up 0.02%. Exhibit 1 illustrates the recent share-price performance for Berkshire Hathaway, Scottish Power, and the S&P 500 Index. The acquisition of PacifiCorp renewed public interest in its sponsor, Warren Buffett. In many ways, he was an anomaly. One of the richest individuals in the world (with an estimated net worth of about $44 billion), he was also respected and even beloved. Though he had accumulated perhaps the best investment record in history (a compound annual increase in wealth for Berkshire Hathaway of 24% from 1965 to 2004),3 Berkshire paid him only $100,000 per year to serve as its CEO. While Buffett and other insiders controlled...
Words: 7766 - Pages: 32
...Case 1 Warren E. Buffett, 1995 How is Berkshire Hathaway’s business composition from Exhibit 1 different or similar today? Be specific. Provide an overall statement to describe Berkshire Hathaway’s performance over time compared to the S&P 500. Can you discern a trend in the investment decisions of Mr. Buffett and are his decisions consistent with the principals learned from his mentor Dr. Graham? Based on the types of company’s that BK now owns, have the Acquisition Criteria been held to, modified, expanded upon? Is there something more to his theories? Comment on the quote “all you need to know to become a successful investor is two courses, (1) A course on how to value companies and (2) a course on human behavior”. How does Buffet’s philosophy statements on page 19 and 20 compare to what you have learned so far in your other management classes or personal experiences? What does the advice that Buffet gave the University of Florida students mean to you? Select 2 quotes on page 22 and comment on why they are meaningful to you. How has Mr. Buffet taken advantage of the recession of the past 4 years? Comment on Mr. Buffet’s quote “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful”. By use of research, how has Buffet and his company applied this statement with their current actions? Case 2 INTUIT Your textbook on page 19 makes reference to the fact that most entrepreneurs learn...
Words: 949 - Pages: 4
...FINANCIAL MANAGEMENT http://mycourses.hult.edu MODULE B 2012-13 INSTRUCTOR Professor Xiaozu Wang EMAIL xiaozu.wang@faculty.hult.edu INSTRUCTOR AVAILABILITY Please contact by email CLASS TIMES & ROOM(S) MIB1: Jan 7, 9, 11, 15, 17, 21, 23, 25, 1:30-4:50, Feb. 1, 9:00-12:20, Feb. 7, 1:30-4:50 COURSE AIMS AND DESCRIPTION OF CONTENT This is an introductory course of finance for MIB students. The course aims to provide students with a conceptual framework and a set of technical tools for making corporate investment decisions. The focus will be maximizing the value of the firm and capital budgeting. Some ethical issues will be highlighted throughout the course. INTENDED LEARNING OUTCOMES Key (Assessed) Learning Outcomes: On completion of this course, students should understand and be able to do the following: 1. Estimate the cost of capital for corporate investment decisions; 2. Make corporate investment decisions using discounted cash flow method; 3. Manage working capital and corporate long-term growth. Supplemental Learning Outcomes: While not assessed, it is anticipated that students will develop the following: 4. Understand the importance of corporate governance for achieving long-term corporate financial objectives and valuation; 5. Understand some unique features of Chinese capital markets. TEACHING AND LEARNING The course will be a mixture of lectures, case discussions and individual and group practices. Students are expected to do the following. 1. 2...
Words: 3258 - Pages: 14
