RBC Downgrades Precision Castparts, Sees No Counter Bid To Berkshire's Price

• The share price of Precision Castparts Corp. (NYSE: PCP) has risen by almost 9 percent over the past three months.
• RBC Capital’s Robert Stallard has downgraded the rating on Precision Castparts from Outperform to Sector Perform, while raising the price target from $230 to $235.
• Stallard believes that following the bid from Berkshire Hathaway, Inc. (NYSE: BRK.A), a counter bid for Precision Castparts is unlikely to emerge.

According to the RBC Capital report, “The recently issued Form 14A also makes it clear that BRK will not be raising its bid, as it is offering a high multiple versus its historical precedent.”

However, given the offer made by Berkshire Hathaway, of $235 per share in cash, Stallard does not expect a counter bid at this point. In addition, it would cost Precision Castparts $600 million in breakup fees, if the company walks away from the deal.

Also, Stallard believes that another company would not give Precision Castparts “the freedom to operate that appears to occur in Berkshire Hathaway.”

Although the company would leave the public stage with this deal, it would still be a major player in the A&D segment. “PCP is a critical part of the engine supply chain, and like the OEMs they have work to do to ensure the LEAP, GTF and Trent ramps all go to plan,” Stallard stated.

With the Berkshire structure, Precision Castparts could “focus on getting this right, and not have to worry about how the equity market will see quarterly EPS,” Stallard added.