Warren Buffet Case

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Team 12 | Case Analysis: Warren Buffett and Berkshire Hathaway’s acquisition of GEICO | By: Maryam Abathi, Jesper Eriksson, Andrew Klotz, Lorenzo Manera, Stanislav Sobolev, | | | | Financial Management Case Analysis at Hult International Business School 2012-2013 | A) What is the possible meaning of the changes in stock price for GEICO and Berkshire Hathaway on the day of the acquisition announcement? Specifically, what does the $718 million gain in Berkshire’s market value of equity imply about the intrinsic value of GEICO? Valuation of GEICO Warren Buffet bought the company of GEICO for 70$ per share, which he estimated to an appropriate price for the purchase of the company. Warren Buffet is focused on the…show more content…
In August up to the announcement, the Berkshire Hathaway had been closing at an average of $24,753. This shows that the announcement had a direct impact of the stock price. The reason for the increase in the stock price in Berkshire Hathaway was dependant on several factors. With the GEICO stock rising with $12.875 to $68.625 on the New York Stock Exchange, Geico Hathaway gained approximately $440 million on their 34.25 million shares in GEICO. With the gain from the upcoming deal with Walt Disney Company, as well as the publication of the Value Line Forecast for GEICO, it is understandable that the Berkshire Hathaway stock rose. Another factor that also comes into play in this case is the famous track record of Warren Buffett when it comes to investing. Conclusion: The increase in Berkshire Hathaway was a response from the markets valuation of GEICO Company to increase, the reinvestments of the money that would be gained on the future sales of Capital Cities/ABC, as well as the markets trust in Warren Buffett’s investments to be successful. B) How well has Berkshire Hathaway performed? In the aggregate? In its investment in Scott & Fetzer? In its investments in earlier purchases of GEICO stock? In its investments in convertible preferred securities? Berkshire Hathaway has a very good proven track record, due to the investments in
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