Case Analysis

You are in the role of a newly-hired Senior Financial Analyst at Berkshire Hathaway (BH).  They have decided to employ you based in large part on the financial acumen you have gained by recently completing your finance studies and degree at university.

Warren Buffett has given approval for BH to enter into an arrangement with Lehman Brothers (LB) to lend $900 million to Williams, an Oklahoma based energy company, for a term of one year.  Williams appears to have some significant near-term cash and liquidity issues, but has several valuable oil and gas properties and a growing core business.

In preparation for the annual Berkshire Hathaway board meeting in Omaha, your boss has asked you to prepare a short white paper that may be handy in responding to questions that may come up in the shareholder meeting relative to this financing.  Specifically, you will need to hand to your boss a paper, not to exceed four pages(exhibits excluded) that addresses, in terms understandable to shareholders (who are not financial analysts) the following:
What is the rate of return to BH on this deal, and how (briefly) is it calculated?
What are some of the principal terms of the deal and what’s the effect of those terms on the risks faced by BH?
How does the overall return to BH look relative to the risks?
How much money does Williams need?
How did Williams get into this situation?
Why should BH want to invest in Williams?

Your boss is looking forward to your assessment!