(Reuters) – Warren Buffett also makes mistakes.
The 90-year-old billionaire admitted on Saturday that he “paid too much” when his Berkshire Hathaway Inc spent $ 32.1 billion in 2016 to buy aircraft and industrial parts maker Precision Castparts Corp, its largest acquisition.
Berkshire lowered $ 9.8 billion from Precision’s value last August, when the coronavirus pandemic undermined demand for air travel and the unit’s products based in Portland, Oregon.
In his annual letter to investors, Buffett said he bought “a good company – the best in its business”, and Berkshire was “lucky” to have Precision CEO Mark Donegan still in charge.
But Buffett said he was “simply too optimistic about the CCP’s normalized profit potential”.
Accuracy wiped out more than 13,400 jobs, or 40% of its workforce, in 2020, and has only recently started improving margins, Berkshire said.
“I was wrong … in judging the average value of future earnings and, consequently, wrong in my calculation of the appropriate price to pay for the deal,” wrote Buffett. “The CCP is far from being my first such mistake. But it is a big problem. “
Two years ago, Buffett admitted that he “overpaid” for Kraft Foods when Berkshire and private equity firm 3G Capital merged it in 2015 with HJ Heinz Co to form Kraft Heinz Co.
And in his 2008 annual letter, Buffett called his 1993 purchase of Dexter Shoe his “worst deal” ever, saying he bought a “worthless deal” and made his mistake worse by using Berkshire stock instead of money to finance the acquisition.
“I will make more mistakes in the future – you can bet on that,” he wrote.
Tom Russo, a longtime Berkshire investor, welcomed Buffett’s candor.
“I admire Warren for taking personal responsibility for Precision Castparts,” he said. “Few managers are willing to admit their responsibility instead of passing the blame.”
Jonathan Stempel reporting in New York; Editing by Marguerita Choy