No. of Recommendations: 6
Just curious, has anyone looked at the price paid for Pilot.
Consideration paid for 41.4% on 31 Jan 2023 $8.2 Billion. Taking Berkshire's ownership to 80%.
Total company valuation $19.8 Billion ($8.2B/41.4%).
Q2 2023 Pilot profit after tax attributable to BH shareholders (i.e. 80%) $114 Million. Annualised, that is $456 Million from the 80%. Grossing that up to 100% is an annual PAT run rate (based on Q2) for all of Pilot of $570 Million.
Using the 5 months profits after tax number annualised gives a similar annual PAT run rate for all of Pilot of $591 Million.
That would equate to Buffett paying 35 or 34 times earnings. That seems very high.
Either:
1. My math is wrong
2. 2023 earnings are depressed in some major way
3. Berkshire paid a big multiple for the business
4. I am unaware of something else
Thank you in advance.
No. of Recommendations: 12
as mentioned in another forum in reply to an almost identical question -
The purchase price of the recent Pilot deal was based on a formula set up years ago. 2022 earnings for Pilot were exceptionally high, resulting in an "expensive" tranche of equity purchase by BRK. Since Berkshire's recent acquisition, Abel has changed upper management and exited several lines of business that were more speculative and had juiced Pilot's earnings the last few years. Pilot has significant debt that increased in cost (Berkshire will likely refinance but hadn't yet in Q2 2023). Pilot's margins decreased in 2023 due to fluctuations in the price and volumes of fuel sold.
But the largest component of the earnings decline is an accounting quirk of purchase accounting that also immediately reduced the reported profits of Precision Castparts after Berkshire's acquisition. From the 10-Q, discussing Pilot specifically:
"Operating and other expenses include depreciation and amortization expense of $243 million in the second quarter of 2023 and $411 million in the five months ending June 30, 2023, a significant portion of which derives from property, plant and equipment and finite-lived intangible asset fair value remeasurements in connection with our application of the acquisition accounting method in 2023."
So the earnings declined because of:
Purchase / acquisition accounting related D&A
Increased interest expense
Decreased margins / decreased volumes
Costs associated with management changes in the C-suite
Exits of several lines of business, primarily commodity trading related.
