Warren Buffett's Berkshire Hathaway Inc., moving to bolster its international presence, said on Friday it would buy 80 percent of Israel's Iscar Metalworking Cos. in a transaction valuing the closely-held tool firm at USD 5 billion.
also said that its first-quarter profit rose 70 percent to USD 2.31 billion, or USD 1,501 per share, helped by increasing auto insurance premiums and a successful bet the US dollar would fall.
, Buffett's biggest purchase in eight years.
The acquisition helps fulfill Buffett's long-stated desire to make "major" acquisitions, which he said in March were needed to produce "truly satisfactory gains" in operating earnings at Berkshire, his insurance and investment company.
It also reflects the billionaire's plan to buy stakes in companies that earn much of their profits outside the United States.
"Iscar is a pretty easy business to understand and Buffett likes that," said Donald Light, an insurance analyst with Celent LLC, who covers Berkshire. "You take metal, you bend it and you ship it out."
The purchase was announced on the eve of Berkshire's annual shareholder meeting in Omaha, Nebraska, where it is based.
There had been mounting market speculation that Buffett, the world's second-richest person, would unveil a major acquisition to help rid Berkshire of some of its enormous cash stake. Berkshire ended March with USD 42.86 billion of cash.
Iscar, based in Tefen, Israel, manufactures metalworking tools used by makers of heavy equipment such as cars and airplanes. It has facilities in Tefen, the United States, Brazil, China, Germany, India, Italy, Japan and Korea.
The firm is controlled by the Wertheimer family, which will retain a 20 percent stake after the closing. Chairman Eitan Wertheimer, Chief Executive Jacob Harpaz and the rest of current management will remain in place. Eitan Wertheimer's father founded the firm 50 years ago.
"As a truly international business, IMC is a top performer in its industry, with exposure to European, Asian and Latin American markets, as well as significant opportunities for growth as it continues to penetrate the North American market," Buffett said. "We have the benefit of investing in a stable business with very significant growth prospects."
UBS and the law firm Wachtell, Lipton, Rosen & Katz advised Iscar on the transaction. The law firm Munger, Tolles & Olson LLP advised Berkshire. The purchase requires regulatory approval.
Earnings rise, currency stake falls
Quarterly net income for Berkshire rose from USD 1.36 billion, or USD 886 per share, a year earlier.
Profit before investment gains totaled USD 1.79 billion, or about USD 1,160 per share. On that basis, analysts polled by Reuters Estimates on average forecast USD 1,082 per share. Revenue rose 29 percent to USD 22.76 billion.
In insurance, auto insurer Geico Corp. posted a 10 percent increase in earned premiums. This helped offset a 14 percent decline at reinsurer General Re Corp., which was hurt by North American cancellations and nonrenewals.
Berkshire posted a USD 151 million gain from its bet the U.S. dollar will fall, but its stake in foreign currency contracts declined to USD 5.4 billion from USD 13.8 billion at year end.
The U.S. Dollar Index, which measures the greenback's value against six currencies, fell 1.6 percent. Berkshire lost USD 955 million on currencies in 2005.
In March, Berkshire's MidAmerican Energy Holdings Co. unit paid USD 5.1 for US utility PacifiCorp from Scottish Power Plc
That purchase contributed to the decline in Berkshire's cash position to $42.86 billion from a revised USD45.02 billion at year end.
Celent's Light said he would not be surprised if Buffett pursues another insurance purchase.
Among Berkshire's many business units are Benjamin Moore & Co., Fruit of the Loom and International Dairy Queen Inc., which make paint, underwear and ice cream.
Berkshire's Class A shares closed on Friday on the New York Stock Exchange at USD 88,710, up USD 710. They are little changed this year.