Warren Wants Wesco

Warren Buffett wants to own all of Wesco Financial (WSC). He is looking to make Wesco a wholly owned subsidiary of the legendary Berkshire Hathaway. Buffett’s company Berkshire Hathaway already owns over 80% of Wesco and is looking to buy the remainder of the company. So, why is Berkshire interested in buying the remaining 19.9% of Wesco?

1. Wesco operates in easy to understand businesses. The firm makes it money through insurance, furniture rental, and steel services. Kansas Bank Surety, CORT Business Services, and Precision Steel are all operating companies under the Wesco umbrella. These are all industries that Buffett has invested in before and is rather familiar with.

2. The acquisition price is a drop in the bucket to Buffett. It will only cost $500 million dollars to acquire the last 20% of the company. Berkshire will acquire the company for a mixture of cash and stock. Shareholders will likely approve the deal since it will allow them to avoid tax complications.

3. The shares are currently cheap. The deal will allow Berkshire to acquire the remaining portion for right around $350 to $360 per share. Berkshire is getting a solid company with an easy to understand business model for book value. That’s a classic Benjamin Graham move.

4. Wesco is in great financial shape. The company has over $2.3 billion dollars in cash and just $36 million dollars in debt. Revenue growth has been solid increasing nearly 12.5% over the past five years. Revenue has increased for four consecutive years with the company earning $813 million dollars last year.

5. The move just makes sense. Charlie Munger has overseen the growth of Wesco for more than 25 years. With Berkshire already owning most of the company, it just makes good business sense to acquire the rest of the company. If Buffett believes in Wesco enough to buy 80% of the company then it stands to reason that he should believe it in enough to own the whole company.