Will Buffett pounce on devalued WellPoint?

August 6, 2007

Billionaire investor Warren Buffett in recent years has wanted to make a massive acquisition but held back, he said, because private equity funds were bidding up prices.

Now, with shares of companies like Indianapolis-based WellPoint Inc. dropping and private equity firms pulling in reins due to rising financing costs, the Berkshire Hathaway Inc. chairman finally might be ready to make his move, according to Bloomberg.

The holding company said in last year's annual report that it needs to make big acquisitions to generate "truly satisfactory" earnings growth, and Buffett in May said that he is looking to spend $40 billion to $60 billion. Berkshire has $46 billion in cash.

Buffett also has said Berkshire is looking for companies with consistent earnings, simple business plans, good return on equity and minimal debt.

In May, Berkshire revealed that it had accumulated 979,000 shares-0.16 percent-of WellPoint, the nation's second-largest health insurer.

WellPoint stock has fallen 6.5 percent in the past three months and now trades near $75 per share. That puts its market value near $45 billion.

Moreover, the shares trade at less than two times book value, defined as assets less liabilities, and profit has risen at a 24-percent annual rate since 2001.

Dozens of other companies are in similar circumstances, making them potential Berkshire targets, Bloomberg reported. Some include Nucor Corp., the Charlotte, N.C., steelmaker, and Kolh's Corp., the department store chain based in Menomonee Falls, Wis.

Berkshire shares have slipped less than 1 percent this year, to $109,900, after having risen at an annual rate of 21 percent for two decades.

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