Case Study of Warren E. Buffet :: Business Management Studies

matter Study of rabbit warren E. BuffetIn 1995 Berkshire Hathaway has made a hollo for the considers of GEICO.This report reviews the offer made by Warren Buffet and volition try toprove that the acquisition of GEICO will servicing the long-term intent ofBerkshire Hathaway and the bid worth was appropriate. Further much, itwill apologize what may have caused for the share price increase forBerkshire Hathaway at the announcement of GEICOs acquisition.Would the GEICO acquisition serve the long-term goals of BerkshireHathaway?In 1976, Warren Buffet paid $45.7 million for 34.25 shares of GEICO. round off of GEICOs historical dividends shows that GEICO has been avery profitable coronation for Berkshire Hathaway. The harvest-feast mark for1994 is a sharp increase, but even if the harvest-time rate for 1994 is notconsidered, GEICOs historical increase in dividends has beenconsiderably lavishly so that acquisition of GEICO will serve thelong-term goals of Berkshire Hathaway.What might look for the share price increase for Berkshire Hathawayat the announcement?Review of Warren Buffets historical investment success might explainthe increase in share price for Berkshire Hathaway at theannouncement. Given that he has had a good track record, it isexpected that shareholders respond positively. In 1977, the price ofBerkshire Hathaway was $89 closing at $25,400 by 1995, an unparalleledannual growth of 37.7%. In comparison, the growth rate of the S&P 500 everywhere the same period was 14.3%. Warren Buffets formidable investment military operation was also demonstrated when Berkshire Hathaway acquiredScott & Fetzer. Berkshire Hathaway paid $315 million for Scott &Fetzer in 1985 later on which they received significant dividends. A cod,Buffets investment performance on the acquisition of Scott & Fetzeroutperformed the S&P 500 evident by an natural rate of return (IRR)of 26.4% including the 1994 cash feed in or 14.9% without 1994 cash flowon the Scott & Fetzer in vestment.Clearly, Warren Buffets positive investment performance carried asignificant weight and influences the market to have a more optimisticoutlook on his investments. Conversely, his historical records ofinvestment success do add value to shareholders trust.Was the bid price appropriate?GEICO Corp was change for $55.75 at the time Warren Buffet andBerkshire Hathaway made an offer of $70 including a 26% premium overthe current GEICO stock price. unity would expect that what appeared tobe an overprice bid would lead to a disconfirming market reaction. On thecontrary, Berkshire Hathaways shares closed up 2.4% for the day for again in market value of $718 million after the announcement. Thegains effect was twofold it increased the value of GEICO shares(34.25 million) Berkshire Hathaway already possess and it also made the