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 500
over the same period was 14.3%. Warren Buffet’s formidable investment
performance was also demonstrated when Berkshire Hathaway acquired
Scott & Fetzer. Berkshire Hathaway paid $315 million for Scott &
Fetzer in 1985 after which they received significant dividends. Again,
Buffet’s investment performance on the acquisition of Scott & Fetzer
outperformed the S&P 500 evident by an internal rate of return (IRR)
of 26.4% including the 1994 cash flow or 14.9% without 1994 cash flow
on the Scott & Fetzer investment.
Clearly, Warren Buffet’s positive investment performance carried a
significant weight and influences the market to have a more optimistic
outlook on his investments. Conversely, his historical records of
investment success do add value to shareholders trust.
Was the bid price appropriate?
GEICO Corp was selling for $55.75 at the time Warren Buffet and
Berkshire Hathaway made an offer of $70 including a 26% premium over
the current GEICO stock price. One would expect that what appeared to
be an overprice bid would lead to a negative market reaction. On the
contrary, Berkshire Hathaway’s shares closed up 2.4% for the day for a
gain in market value of $718 million after the announcement. The
gain’s effect was twofold – it increased the value of GEICO shares
(34.25 million) Berkshire Hathaway already owned and it also made the
The fundamental weakness and contradictions of the world economy was the actual cause of the Great Depression. The international economy was in shambles because of the cost of war and the American economy was indirectly damaged by this; however, October 29, 1929 is the official beginning of the Great Depression because of the stock market crash of 1929. Paper fortunes had vanished but money was the foundation of American life. People usually took loans from banks so they could start businesses but because of the Depression, they took out loans so they would have e...
Thomas Jefferson's strict interpretation not only stretched on political views, but religious views as well. Creating the Virginia Statue of Religious Freedom, Jefferson gave states the right to make those decisions, and the federal government had no say in religion (1). Politically, Jefferson was of strict interpretation, yet he did through-out his presidential terms made loose interpretations of the Constitution. This was mainly shown in the purchase of Louisana. At first, Jefferson wanted only New Orleans to keep the mouth of the Mississippi out of French possesion. If that would fail, he was even willing to make an alliance with Britain. When hearing that the United States had bought all of the Louisana Territory, Jefferson soon began to fret over whether it was unconstitutional (a loose interpretation). When Jefferson first took office, he appointed a new Treasury Secretary Gallatin, and kept most of the Federalist policies laid down by Alexander Hamilton in place. All the ideas the Democratic-Republicans were against, Thomas Jefferson kept all of them except for the excise tariff. Against war, Jefferson decided to size down the army during his administration. But the pasha of Tripoli declared an outrageous amout of money by the United States, and with the United States saying no, cutdown the flagstaff in front of the U.S. Consolate (4). Jefferson was forced to go against his views, and build up the army against the North African Barbary States in the First Barbary War (4). And last, but not least, Jefferson's Embargo Act of 1807 not only changed from strict to loose interpretations, but changed New Englanders minds as well (1)(5).
What were the key criticisms levied by different interest groups against Enron and the Dabhol Power Project? Discuss whether these concerns were valid, given particularly India’s priorities and problems, as a transition economy.
Smallpox according to Feen took its toll on American’s as well as those of the colonist and British soldiers. One other item of interest I found in the introduction was the map of how the virus moved itself across North America. The virus from what I can see only need a host to travel. After closer examination you can see that they virus followed the routes of the soldiers or that of other militia as they made their way through parts of North America and Canada. Once it started there seemed to be no stopping i...
The Bernie Madoff Ponzi Scheme is a well-known case and is known as one of the biggest Ponzi scheme’s. In summary the scheme occurred for many reasons that I will some up into 3 points; A lack in competency by regulatory agencies, a lack of regulation, and finally a breach in ethics by Bernie Madoff himself. To explain further, the regulatory agencies like the lawyers and SEC are supposed to prevent schemes such as this one from happening but because they lacked the skills to correctly assess the situation, interpreting the number of tips they had received regarding scheme that had been filed, and to act on those in an efficient manner. One of the tips was made by Harry Markopolos in 2000, of who correctly predicted that Madoff was guilty of fraud. Even after this tip from Markopolos, Madoff was not arrested until 2009. Many family members were also a part of the fraud along with some non-family members such as Frank DiPascali and a team known as the 17th floor team, who helped Madoff carry out his fraud. The idea behind Madoff’s fraud was that he would produce false statements of their investments and when people wanted to pull out their investments, the money wasn’t actually there, which rightfully rose more than a few eyebrows and ultimately led to his arrest.
As Jefferson’s presidency wore on, the Jeffersonian Republican beliefs began drifting farther away from the original ideals they began with. Some of the decisions made by Jefferson proved to follow the loose construction of the Constitution of the Federalists. When he made the decision to purchase the Louisiana Territory, he never obtained congressional approval. He...
One of the determining factors of a person’s survival from the variola virus during the period of the American Revolution in North America was race. Even though the variola virus in and of itself does not factor in race to determine whether to infect one person over another, race did factor in significantly in the survival rate when exposed to the virus. Part of Fenn’s argument is that Europeans had an innate immunity over diseases that those who were not from Europe did not have. She argued that since Europeans come from a world with a large array of diseases their bodies had built up certain protections against the variola virus. This innate immunity that Fenn discussed brought about certain mechanisms within the body that pr...
Strict constructionists said that it was to be followed to the letter...if it wasn't in the Constitution you couldn't do it. They felt that it covered everything adequately and allowing a broad interpretation opened up too many possibilities.
In various political addresses, Jefferson was seen as inseparable with strict interpretation and a contender for state rights. He tried to affirm the belief that domestic policies should be decided by the states and fears that the Federalists will change the Constitution (docum. A). By the Virginia and Kentucky resolutions, Jefferson and Madison asserted that states were the foundation of the nation and therefore had suprem...
Investors and the media once considered Enron to be the company of the future. The company had detailed code of ethics and powerful front men like Kenneth Lay, who is the son of a Baptist minister and whose own son was studying to enter the ministry (Flynt 1). Unfortunately the Enron board waived the company’s own ethic code requirements to allow the company’s Chief Financial Officer to serve as a general partner for the partnership that Enron was using as a conduit for much of its business. They also allowed discrepancies of millions of dollars. It was not until whistleblower Sherron S. Watkins stepped forward that the deceit began to unravel. Enron finally declared bankruptcy on December 2, 2001, leaving employees with out jobs or money.
The history of Lehman Brothers (LBs) is dated back to 1844 when Henry Lehman and his two brothers established a small shop in Alabama (United States) to sell groceries and other commodities (Geisst, 2001). In the early 1900’s, they formed to a greater business company trading on the New York exchange market and the Cotton Exchange, which successfully promoted the family business to the retail giants with a partnership with Goldman and Sachs (Geisst, 2001; Wechsberg, 1966). Subsequently, the further opportunity raised in collaboration with some firms in the railway industry such as the Baltimore and Ohio railways, Chicago railways and others (Harward Business School, 2012). In 1975, the company achieved its success when it became the 4th largest investment bank in the US by merging with Kuhn, Loeb and Company, which boosted their financial activities in the financial market (Sloane, 1977). In the new line of business by diversifying their operations from a small shop via investments in the industry sectors, eventually they transformed to the company operating in the banking and brokerage (Geisst, 2001). Although LBs experienced remarkable successes and achievements, the housing market bubble in USA led to their collapse causing that in September 2008 the company filed for chapter 11 bankruptcy petitions that triggered a negative flow of consequences (Caplan et al., 2010).
Enron had rose to the top by engaging in energy projects worldwide and speculating in oil and gas futures on the world’s commodities markets. They also provided financial support to some presidential candidates and members of the U.S. Congress. However, Enron had a secret. The corporation had created partnerships located in off-shore
What is the possible meaning of the change in stock prices for Berkshire Hathaway and Scottish Power plc on the day of acquisition announcement? Specifically, what does the $2.55 billion gain in Berkshire’s market value of equity imply about the intrinsic value of PacifiCorp?
Enron was an American energy, commodities, and services company that was based out of Houston, Texas. Enron was created by the joining of two natural gas companies, InterNorth Inc . of Omaha, Nebraska and Houston Natural Gas. Enron had a rapid rise to become one of the biggest corporations in the United States at the time and also became one of the biggest business collapses in United States history. I will talk about how Enron came into existence and how it ultimately failed.
Enron formed in 1985 when InterNorth merged with Houston Natural Gas, whose CEO Kenneth Lay would become the CEO of the newly formed Enron, who at its peak was worth 70 billion dollars. Lay held a Ph.D. in Economics. Lay was also a contributor to being granted deregulation and the ability to sell energy on the free market. It was this deregulation that caused Ken Lay to see the money he could make in energy and what ultimately caused Enron to form. This is what Ken Lay had dreamed of since he was a child, not wanting to be poor. And Enron was going to deliver this to him. After-all he had something the whole world needed (energy with a price that flowed and fluxed with the market). Combine this with his ability to create a market which allowed