1. What does the stock market seem to be saying about the acquisition of PacifiCorp by Berkshire Hathaway?

2. Based on your own analysis, what do you think PacifiCorp was worth on its own before its acquisition by Berkshire?

3. Well, maybe Buffett is overpaying—does he have a record of overpaying in the past?

4. Here are the major elements of Buffett’s philosophy. What do those elements mean? Do you agree with them?

5. Let’s return to the basic issue. Is the PacifiCorp acquisition a good or bad deal? Why?

6. Take a vote on whether the shareholders should endorse the acquisition. For those of you who believe that PacifiCorp will be a good purchase, what justifies your belief? For those of you who voted no, why did you oppose it?

Set in May 2005, this case invites the student to assess Berkshire Hathaway’s bid, through MidAmerican Energy Holdings Company, its wholly owned subsidiary, for the regulated energy-utility PacifiCorp. The task for the student is to perform a simple valuation of PacifiCorp and to consider the reasonableness of Berkshire’s offer. Student analysis readily extends into the investment philosophy and the remarkable record of Berkshire’s chair and CEO, Warren E. Buffett.

The case is an introduction to a finance course or a module on capital markets. The analytical tasks are straightforward and intended to provide a springboard into discussion of the main tenets of modern finance. Thus, the case would be useful for:

• Setting themes at the beginning of a finance course, including risk-and-return, economic reality (not accounting reality), the time value of money, and the benefits of alignment of agents and owners
• Linking valuation to the behavior of investors in the capital market
• Modeling good practice in management and investment using Warren Buffett as an example by returning to the image of Buffett repeatedly during a finance course to ask students what Buffett would likely do in a situation
• Characterizing stock prices as equaling the present value of future equity cash flows
• Exercising simple equity-valuation skills.