November 23, 2011 · 0 Comments
Warren Buffett – one of the world’s most closely watched investors – has disclosed building a 5.5% stake in IBM. Mr Buffett’s Berkshire Hathaway fund started buying shares in the firm in March, eventually spending around $10.7bn (£6.7bn). What does this acquisition means for other Service Provider companies such as Accenture & Indian Tech companies such as TCS, Infosys, Cognizant & Wipro?
The billionaire had steered away from technology firms in the past. However, he said that he had been impressed by IBM’s road map for how it planned to attract IT firms outside the US to sign up to its services. Until now the US bank, State Street, was the biggest known investor in IBM by a clear margin. A September filing revealed the lender owned 5.5% of the firm.
The holding is valued at $12 billion at current prices, already reflecting a 12% gain from what Berkshire paid. Warren Buffet has got the stake at 170$ on average. Berkshire secretly had been accumulating the shares since March, twice receiving confidential treatment from the Securities and Exchange Commission, which otherwise mandates that big investors disclose their holdings quarterly. Berkshire made its purchases during a period when shares of the information-technology services provider hit new highs while the broader stock market convulsed.
IBM shares have surged 28% this year, outdoing a flat showing in the Standard & Poor’s 500 broad-market index and making the company the fourth-biggest U.S. firm by market capitalization, after Exxon Mobil Corp., Apple Inc. and Microsoft Corp.
The shares are trading at nearly 15 times IBM’s 2010 earnings and 12.7 times its projected 2012 earnings, based on analysts’ forecasts. That valuation is similar to Oracle Corp. but higher than Microsoft’s forward price-to-earnings multiple of 8.5 times.
One thing is per sure with this acquisition that Buffet foresee great time ahead of IT companies especially IBM due to which he has made such a huge investment. This is surely a good news not only for the other IT companies or the investors in it but also to the employees of these companies who have seen turbulent times in global recession of 2008.