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Author: Tan KW   |   Latest post: Tue, 13 Apr 2021, 4:11 PM

 

Warren Buffett's US$10 billion mistake: Precision Castparts

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NEW YORK (Feb 28): Warren Buffett makes mistakes too.

The 90-year-old billionaire on Saturday admitted he "paid too much" when his Berkshire Hathaway Inc spent US$32.1 billion in 2016 to buy aircraft and industrial parts maker Precision Castparts Corp (PCC), its largest acquisition.

Berkshire wrote off US$9.8 billion of PCC's value last August, as the coronavirus pandemic sapped demand for air travel and the Portland, Oregon-based unit's products.

In his annual letter to investors, Buffett said he bought "a fine company — the best in its business", and Berkshire was "lucky" to have PCC chief executive Mark Donegan still in charge.

But Buffett said he was "simply too optimistic about PCC's normalised profit potential".

PCC shed more than 13,400 jobs, or 40% of its workforce, in 2020, and only recently began to improve margins, Berkshire said.

"I was wrong... in judging the average amount of future earnings and, consequently, wrong in my calculation of the proper price to pay for the business," Buffett wrote. "PCC is far from my first error of that sort, but it's a big one."

Two years ago, Buffett admitted he "overpaid" for Kraft Foods when Berkshire and private equity firm 3G Capital merged it in 2015 with their HJ Heinz Co to form Kraft Heinz Co.

And in his 2008 annual letter, Buffett called his 1993 purchase of Dexter Shoe his "worst deal" ever, saying he had bought a "worthless business" and compounded his error by using Berkshire stock rather than cash to fund the acquisition.

"I'll make more mistakes in the future — you can bet on that," he wrote.

Tom Russo, a long-time Berkshire investor, welcomed Buffett's candor.

"I admire Warren for taking personal responsibility for Precision Castparts," he said. "Few managers are willing to admit their responsibility rather than pass on blame."

 

 - Reuters

 

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