In conclusion, is the bid price appropriate? Would GEICO acquisition serve the long-term goals of Berkshire Hathaway? What might account for the share price increase for Berkshire Hathaway at the announcement? Yes the bid price for GEICO's shares was higher that what the actual price per share was. Buffet's track record for picking companies to purchase is outstanding. He has one of the best investment records in history and is well recognized by the financial community. Berkshire's year-end price in 1977 was $89. In 1995, the firm's closing share price was $25,400, an increase of $25,311 per share in 18 years. This is a 284% annual rate of return. GEICO will be a part of the most profitable segment - insurance. It can be reasonably anticipated that margins will be in line with historical levels and the need for capital expenditures is extremely low based on past performance of the insurance segment. Since the acquisition is in the most profitable segment, requiring the least amount of capital expenditures and has the highest identifiable asset base, the financial community and investors are anticipating a rise in the overall company's return, etc.
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