What is the possible meaning of the changes in stock price for Berkshire Hathaway and Scottish Power on the day of the acquisition announcement: Specifically, what does the $2.55 billion gin in Berkshire market value of equity imply about the intrinsic value of PacifiCorp?

Question 1 What is the possible meaning of the changes in stock price for Berkshire Hathaway and Scottish Power on the day of the acquisition announcement: Specifically, what does the $2.55 billion gin in Berkshire market value of equity imply about the intrinsic value of PacifiCorp?

Stock prices have deep meanings for companies that have been listed. Through the performance of the stock, the possible viability of a company can be estimated in a given time. Berkshire Hathaway, being the mother company of MidAmerican Energy Holdings Company, had to feel the impact of the acquisition. Similarly, Scottish Power that was the parent company of PacifiCorp had to experience some shifts in the performance of the stock prices. On the actual day, there was an uptick of 2.4% of the Class A category shares of Berkshire Hathaway depicting a gain of $2.25 billion. The share price of Scottish Power also hiked to 6.28%. The intrinsic value of PacifiCorp seemed to be promising judging by the gain that was attained of $2.25 billion on the day of acquisition. The market was yearning for that move that was initiated by Warren Buffet.

Question 2 Based upon the multiples for comparable regulated utilities, what is the range of possible values for PacifiCorp? What questions might you have about this range?

The values of a company, especially after acquisition usually becomes a matter of utmost speculation within the market. Pundits are always ready to judge the potential effect that an acquisition would make in an industry or market. PacifiCorp is a company that is still expected to depict diverse ranges of performance as it seeks to stabilize after the acquisition. PacifiCorp might range from approximately 10% less that the value that has been provided. This is because most companies have the tendency of inflating their values when they realize that they are in line for potential acquisitions. However, the valuation process is usually done procedurally by the potential buyer. This is why when studying the performance of Berkshire Hathaway, its “category A” shares have been in an almost constant increase over the years. The performance of this classification of shares is relatively lower than that of the composite index.

Question 3 Assess the bid for PacifiCorp. How does it compare with the firm’s intrinsic value? As an alternative how does the value from a DCF approach differ from say balance sheet methods, income sheet methods (multiples), goodwill based methods, or value added methods (EVA, economic profit,.etc.)?

The bid for the PacifiCorp by Warren Buffet came at a time when the business guru had been relatively silent about fresh acquisitions. The business world was abuzz with all the news concerning his acquisitions and the repercussions that would ensue. The intrinsic value of a company is driven by different factors that are relatively dissimilar from those that exist in conventional accounting systems (GAAP). There are value-based methods that are used to study the performance of a company such as PacifiCorp. The bid by Berkshire Hathaway was well deserved by the company because it got a chance to diversify into another sector of the economy that perhaps pundits were not expecting to happen. The DCF approach, for instance, focuses on the analysis of cash flows to determine the potential gains that an investor can obtain if he or she acquires the company. The balance sheet method also focuses on the analysis of assets and liabilities of a company like PacifiCorp in order to judge its volatility. However, even according to Warren Trump, these methods are mostly based on conventional methods. There are deeper factors that can be studied when analyzing the actual value of a company such as the goodwill that it commands.

Question 4 Should Berkshire Hathaway’s shareholders endorse the acquisition of PacifiCorp?

Berkshire Hathaway shareholders need to embrace the acquisition of PacifiCorp. The company can perform better if proper and achievable goals are set for it. Warren Buffet does not believe in assumptions when investing in any business. He looks at the possible realistic dimensions of the company that can grow when all the right business procedures are followed. Just like the share prices increased when the company was acquired, consumer confidence and shareholders’ confidence can be instrumental in stimulating PacifiCorp’s growth.

Question 5 Should Scottish Power’s shareholders endorse the acquisition of PacifiCorp?

Scottish Power’s shareholders need not to decline the offer. This acquisition puts the shareholders at a vantage point. There are both economic and non-economic gains that the shareholders are likely to gain from the acquisition. For instance, there are numerous indirect benefits that the shareholders can get from the publicity. For instance, this platform can help them also to get possible acquisitions in future.

Question 6 If you think Berkshire is overpaying for Pacific Corp, what would be a reasonable price? If you believe that Berkshire is getting a good value, up to how much should Berkshire be willing to offer?

Berkshire Hathaway’s offer for Pacific Corp shows that Warren Buffet values future gains as opposed to immediate gains. This was evident even when he acquired Berkshire. With time, the company started churning out billions of dollars in profitability annually. Berkshire has a deal that promises future gains. PacifiCorp ought not to be bought at a value that is less than all its assets and the goodwill that it enjoys cumulatively