Ancell Consulting Group

Berkshire Hathaway and

FIN 490 PacifiCorp

Joe, Sam, John, Rashed

Itinerary
 History/ Background - Rashed
 Asset Allocation - Rashed
 Buffet’s Investment Philosophy - Sam
 Methodology - Sam
 MidAmerican Energy - Joe
 PacifiCorp - John
 Recommendation - John
Background
Berkshire’s Portfolio of business
Buffets Investment Philosophy

1) Economic reality, not accounting reality

2) Cost of lost Opportunity
3) Value creation: time is money
4) Measure performance by gain in intrinsic value, not
profits
5) Risk and discount rates
6) Diversification
7) Investing driven by info, analysis and self-discipline
8) Alignment of agents and owners
 Time money of projected cash
flows (amount in billions)

PacifiCorp
Value Creation 25
0 1 2 3 4 5
ROE $9.4 $11.28 $13.54 $16.24 $19.49 $23.39 20
20%
COE
15%
15
Market book value created: $1.24
10

Value Destruction 5
0 1 2 3 4 5
ROE $9.4 $10.34 $11.37 $12.51 $13.76 $15.14 0
10%
COE
15%
Value Creation Value Destruction
Market book value destroyed: $0.80
MidAmerican financials
MidAmerican Net Earning Growth vs. Return on
Revenue

Year % Growth on
revenue return
2000 0
2001 38%
2002 92%
2003 138%
2004 27%
Share price performance of Berkshire and
Scottish Power
 Comparable Regulated Energy Firms

Firms and their performance

Beta Shares Market Net
O/S Cap Income
Alliant 0.85 115.74 $3026.60 $164
Energy
Cinergy 0.85 187.53 $7266.79 $404
Corp
NSTAR 0.70 106.55 $2658.42 $190
SCANA 0.75 113.00 $4096.25 $264
Corp
Wisconsi 0.70 116.99 $3749.53 $306
n Energy
PacifiCor 0.77 312.18 $5508.16 $252
p
Return on Assets and Debt Ratio
 Valuation for Pacific Corp.
and Berkshire Hathaway

Basis Enterprise Values Berkshire Hathaway

In Millions
Beta = 0.75
Revenue $6,584
Risk Free (2004) = 5.76%

EBIT $9,289 CAPM = 9.315%

Historical Return = 24%

EBITDA $9,076
Acquisition
Value Added = $2,010
Net Income $7,553
Conclusion
 Low risk of corporate greed

 High levels of intrinsic value

 Track record

 Investor confidence