Case Analysis
Investor reaction to the PacifiCorp announcement
The investor reaction suggests that the deal will not only create value for PacifiCorp’s acquirer, Berkshire Hathaway, but also for the seller, Scottish Power. In fact, as a relative matter, it would appear that the market sees more value accruing to Scottish Power because of its divestiture of PacifiCorp than to Berkshire, as a result of its acquisition of the company. Students could be encouraged to consider why this might be so (i.e., why Scottish Power would seem to gain more benefit from the deal than Berkshire Hathaway).
The $2.55 billion increase in Berkshire Hathaway’s market value indicates an expected benefit to Berkshire from the acquisition. Some students will measure the extent of this benefit as a gain of $2.55 billion in Berkshire’s market value of equity divided by PacifiCorp’s 312.18 million shares outstanding or $6.95 per PacifiCorp share more than Buffett is paying. Berkshire is offering $5.1 billion in cash for PacifiCorp’s equity, for a per-share price of $16.34; altogether, this would imply a per-share expected value for PacifiCorp’s shares of $23.29. Is this a fair estimate of PacifiCorp’s intrinsic value? Students must perform their own valuation of PacifiCorp in order to arrive at an independent judgment about this value.