Berkshire Hathaway to Acquire Balance of IMC International Metalworking Companie

[Charlie]

Berkshire Hathaway to Acquire Balance of IMC International Metalworking Companies

 

http://finance.yahoo.com/news/berkshire-hathaway-acquire-balance-imc-120500596.html

 

 

Cheers!

 

 

[jay21]

Nice.  Anyone know what the carrying value of Iscar is? 

[WhoIsWarren]

Well the 2006 transaction valued Iscar at $5bn.  The current carrying value will be different to the extent that they've retained earnings or raised additional equity.

 

[fareastwarriors]

http://www.bloomberg.com/news/2013-05-01/berkshire-buys-remaining-stake-in-imc-for-2-05-billion-1-.html

[gfp]

IMC also purchased TungAloy for around a billion dollars since BRK's first acquisition.  If this situation is anything like Marmon Holdings, BRK will need to take a write down on this!  Amazing GAAP.

[Guest longinvestor]

My first job out of college was in this very industry, Tungsten carbide / other high performance tool materials! I could'nt believe when the initial ISCAR deal was announced in 2006(?) at the AGM. The fact that Berkshire owns one of the long term growth player in ISCAR, in the fastest growing part of the manufacturing world (Asia) means nothing but good for as far and as long as the eye can see!. This business has a deep moat and barriers to entry. The industry was always held in a few captive hands but has further consolidated over the past 25 years into a few players, notably Sandvik & ISCAR.

 

This is a gem!

[WhoIsWarren]

My first job out of college was in this very industry, Tungsten carbide / other high performance tool materials!

 

Aha, so somebody with hands-on industry knowledge?  Do you have strong views on Kennametal?  It's one I've been eyeing for a while but just can't get over the line. 

 

KMT is trading on an undemanding valuation on the face of it.  However, look at margins, which are ball-park  twice their historic average.  The company line is that they've exited the commoditised end of the market, which may be true but even at that I have my doubts about their acquisition policy.  Plus they take "one off" restructuring charges, which I believe are more of a regular cost of doing business (in which case should some annual charge should be factored in).  All of which leads me to conclude that I'd like to buy it.....but maybe at a price in the $20s and not the high $30s.

 

Any thoughts?

 

 

[Guest longinvestor]

My first job out of college was in this very industry, Tungsten carbide / other high performance tool materials!

 

Aha, so somebody with hands-on industry knowledge?  Do you have strong views on Kennametal?  It's one I've been eyeing for a while but just can't get over the line. 

 

KMT is trading on an undemanding valuation on the face of it.  However, look at margins, which are ball-park  twice their historic average.  The company line is that they've exited the commoditised end of the market, which may be true but even at that I have my doubts about their acquisition policy.  Plus they take "one off" restructuring charges, which I believe are more of a regular cost of doing business (in which case should some annual charge should be factored in).  All of which leads me to conclude that I'd like to buy it.....but maybe at a price in the $20s and not the high $30s.

 

Any thoughts?

 

I have nothing to contribute by way of KM's valuation today. But from the Carbide tooling industry perspective, they have suffered at the hands of the global consolidators like ISCAR, Tungaloy, Sandvik et al. Also, in the 90's KM became aquisitive in other industries, don't know how all that worked out for them.

[WhoIsWarren]

I have nothing to contribute by way of KM's valuation today. But from the Carbide tooling industry perspective, they have suffered at the hands of the global consolidators like ISCAR, Tungaloy, Sandvik et al. Also, in the 90's KM became aquisitive in other industries, don't know how all that worked out for them.

 

Right, thank you longinvestor.  Interesting you say that KMT has suffered.  You think that's an ongoing issue or something they've corrected?

 

If you wouldn't mind, could you give your take on some bigger industry questions.  I can see how the high end of the market is pretty consolidated and that there are high barriers to entry (is that true??).  But amongst the big three it would appear that profitability differs quite a bit (don't have info to hand, but that's my memory).  So I guess, what makes one carbide company superior to another?  From what I understand, each of KMT, Iscar and Sandvik produce equally good products (according to an industry source, they all copy each other, patents or no patents!), but maybe that's an oversimplification.  Is an efficient manufacturing process difficult to achieve?  How important is distribution to their success and how important is it to own your distribution network (which I think Iscar broadly does) versus having "tied agents"?

 

Perhaps a better way to phrase my question is: why did Berkshire go all the way to Israel to buy Iscar (first acquisition outside the US) rather than buying KMT?

 

Any help here appreciated.  I really believe this is a fascinating little sub-industry.

 

Cheers.

[Mephistopheles]

My first job out of college was in this very industry, Tungsten carbide / other high performance tool materials! I could'nt believe when the initial ISCAR deal was announced in 2006(?) at the AGM. The fact that Berkshire owns one of the long term growth player in ISCAR, in the fastest growing part of the manufacturing world (Asia) means nothing but good for as far and as long as the eye can see!. This business has a deep moat and barriers to entry. The industry was always held in a few captive hands but has further consolidated over the past 25 years into a few players, notably Sandvik & ISCAR.

 

This is a gem!

 

If you don't mind, can you explain what is the deep moat and barriers to entry in this business? Thank you

[Guest longinvestor]

My first job out of college was in this very industry, Tungsten carbide / other high performance tool materials! I could'nt believe when the initial ISCAR deal was announced in 2006(?) at the AGM. The fact that Berkshire owns one of the long term growth player in ISCAR, in the fastest growing part of the manufacturing world (Asia) means nothing but good for as far and as long as the eye can see!. This business has a deep moat and barriers to entry. The industry was always held in a few captive hands but has further consolidated over the past 25 years into a few players, notably Sandvik & ISCAR.

 

This is a gem!

 

If you don't mind, can you explain what is the deep moat and barriers to entry in this business? Thank you

 

A combination of these factors which has historically kept new entrants out of getting into this business:

> Exotic & somewhat rare tool materials (Tungsten, Cobalt, Tantalum etc.), high temperature processing which has lead to blurred lines between Science and art

> Metalworking application specific development of tool materials (commonly called grades); As the world experimentsand develops products with ever newer alloys, the tool grade development has gotten ever so complex. It is a true web, and the way the web is weaved is learned only by those weaving it, and those are the few left in the field. (ISCAR, Sandvik et al)

> The sales channels (closely tied to application development) is also a deep web of people to people selling, is part of the web-weaving. The cost of trying/switching out tool materials is not something many users are willing to take on.

 

The combination of these factors and the skills based on experience makes it an "art" type industry where historically few have ventured into. I would like to hear from others who may have direct or indirect experience within this industry for their opinions.

[fareastwarriors]

http://www.bloomberg.com/video/selling-to-buffett-was-plan-from-day-1-wertheimer-smJNoNbmQxqjv6xpAJauOg.html

 

 

Eitan Wertheimer, Chairman of Iscar Metal Cutting Co., discusses Iscar’s acquisition by Berkshire Hathaway. He speaks on Bloomberg Television's "In The Loop."

[Grenville]

http://www.bloomberg.com/video/selling-to-buffett-was-plan-from-day-1-wertheimer-smJNoNbmQxqjv6xpAJauOg.html

 

 

Eitan Wertheimer, Chairman of Iscar Metal Cutting Co., discusses Iscar’s acquisition by Berkshire Hathaway. He speaks on Bloomberg Television's "In The Loop."

 

Thanks!

[dartmonkey]

I have nothing to contribute by way of KM's valuation today. But from the Carbide tooling industry perspective, they have suffered at the hands of the global consolidators like ISCAR, Tungaloy, Sandvik et al. Also, in the 90's KM became aquisitive in other industries, don't know how all that worked out for them.

 

 

Perhaps a better way to phrase my question is: why did Berkshire go all the way to Israel to buy Iscar (first acquisition outside the US) rather than buying KMT?

 

Any help here appreciated.  I really believe this is a fascinating little sub-industry.

 

Cheers.

 

Iscar owners called Buffett. He didn't go to Israel to buy a tool business, they came to Omaha and offered it on a silver platter. This is Buffett's dream scenario, I'm sure he wishes it happened a little more often.

[WhoIsWarren]

I have nothing to contribute by way of KM's valuation today. But from the Carbide tooling industry perspective, they have suffered at the hands of the global consolidators like ISCAR, Tungaloy, Sandvik et al. Also, in the 90's KM became aquisitive in other industries, don't know how all that worked out for them.

 

 

Perhaps a better way to phrase my question is: why did Berkshire go all the way to Israel to buy Iscar (first acquisition outside the US) rather than buying KMT?

 

Any help here appreciated.  I really believe this is a fascinating little sub-industry.

 

Cheers.

 

Iscar owners called Buffett. He didn't go to Israel to buy a tool business, they came to Omaha and offered it on a silver platter. This is Buffett's dream scenario, I'm sure he wishes it happened a little more often.

 

Right dartmonkey, thanks.  That probably explains it.

 

I'm still looking to see if there's an angle.  An industry source my buddy spoke to (an Iscar distributor) claimed that Iscar were the most innovative and best run in the industry.  [i'll speak to him about it again and if I get more insights I'll repost next week].  That source was biased of course, so I'd like to see if anyone else has an alternative or confirmatory view.

 

Interestingly, this source felt that Iscar could / should buy Kennametal.  Anyone else had this thought and how likely is it?

[Mephistopheles]

My first job out of college was in this very industry, Tungsten carbide / other high performance tool materials! I could'nt believe when the initial ISCAR deal was announced in 2006(?) at the AGM. The fact that Berkshire owns one of the long term growth player in ISCAR, in the fastest growing part of the manufacturing world (Asia) means nothing but good for as far and as long as the eye can see!. This business has a deep moat and barriers to entry. The industry was always held in a few captive hands but has further consolidated over the past 25 years into a few players, notably Sandvik & ISCAR.

 

This is a gem!

 

If you don't mind, can you explain what is the deep moat and barriers to entry in this business? Thank you

 

A combination of these factors which has historically kept new entrants out of getting into this business:

> Exotic & somewhat rare tool materials (Tungsten, Cobalt, Tantalum etc.), high temperature processing which has lead to blurred lines between Science and art

> Metalworking application specific development of tool materials (commonly called grades); As the world experimentsand develops products with ever newer alloys, the tool grade development has gotten ever so complex. It is a true web, and the way the web is weaved is learned only by those weaving it, and those are the few left in the field. (ISCAR, Sandvik et al)

> The sales channels (closely tied to application development) is also a deep web of people to people selling, is part of the web-weaving. The cost of trying/switching out tool materials is not something many users are willing to take on.

 

The combination of these factors and the skills based on experience makes it an "art" type industry where historically few have ventured into. I would like to hear from others who may have direct or indirect experience within this industry for their opinions.

 

Thank you! Very interesting !