Warren Buffett Recently "Came Pretty Close" to Spending $10 Billion On an Acquisition, and I Strongly Believe One of These 2 Companies Was the Target

There's not a billionaire investor on Wall Street who captivates the attention of professional and everyday investors like Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett. He earned his nickname, the "Oracle of Omaha," by absolutely crushing the broad-based S&P 500 in the return column over the last 60 years.

No event is more special than Berkshire Hathaway's annual shareholder meeting, which typically draws in the neighborhood of 40,000 people. This meeting features a question-and-answer (Q&A) session that extends hours and allows investors to pick the brain of one of Wall Street's most successful asset managers.

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While the headline takeaway of Berkshire Hathaway's latest annual meeting is that the 94-year-old Buffett will be stepping aside as CEO by the end of the year and handing the reins to predetermined successor Greg Abel, this was far from the only meaningful announcement.

Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.

Berkshire's chief also mentioned during the Q&A session that he and his team nearly pulled the trigger on a sizable acquisition. Said Buffett: "We came pretty close to spending $10 billion, not that long ago, for example, but we'd spend $100 billion. I mean, those decisions are not tough to make when something is offered that makes sense to us and that we understand and offers good value."

With Buffett being a net seller of stocks for 10 consecutive quarters and growing Berkshire Hathaway's cash pile to almost $348 billion amid a historically pricey stock market, "good value" has been tough to come by. Although Warren Buffett, ultimately, didn't pull the trigger on this teased $10 billion deal, there are two companies -- one of which is a legal monopoly -- which perfectly fit the bill as potential targets of a $10 billion acquisition.

The logical choice: Sirius XM Holdings

If there's one stock that makes for a logical acquisition target for Warren Buffett's company at a $10 billion price tag, its satellite-radio operator Sirius XM Holdings (NASDAQ: SIRI). Sirius XM has a market cap of nearly $7.4 billion.

There are a couple of variables that make Sirius XM a potentially logical buyout target for Berkshire Hathaway. To begin with, Berkshire is its largest shareholder. As of the end of March, Buffett's company held 35.4% of Sirius XM's outstanding shares. Completing the purchase of the remaining shares at a premium price still wouldn't cost Berkshire $10 billion out of pocket.

Secondly, Sirius XM provides a sustainable competitive advantage, which is something that Warren Buffett tends to seek out in the businesses he invests in. Although it's still competing for listeners with traditional radio providers, it's the only company with a satellite-radio license. Being a legal monopoly should afford Sirius XM a level of subscription pricing power that other companies can't match.

The third factor that would have made Sirius XM an ideal $10 billion acquisition target for Buffett is its diversified revenue stream. Whereas terrestrial and online radio providers almost exclusively generate their revenue from advertising, Sirius XM brings in a little north of three-quarters of its net sales from subscriptions. The value of Sirius XM's approach is that its cash flow remains more predictable and consistent during inevitable economic downturns where ad spending can quickly dry up.

It's also worth mentioning that Buffett has previously demonstrated a willingness to establish large investment holdings in media/broadcasting stocks. Sirius XM is well within the wheelhouse of Buffett's investment areas of focus.

Lastly, Sirius XM Holdings provides a value proposition that's incredibly difficult to find in a historically expensive stock market. While economic uncertainty has weighed on its cumulative subscriber count in recent quarters, Sirius XM's shares are currently valued at a little over 7 times forecast earnings per share in 2025. There's an attractive risk-versus-reward profile.

Image source: Getty Images.

The dark horse candidate that checks all the right boxes: Stanley Black & Decker

However, Sirius XM isn't the only company which checks all the right boxes that exhibited a price dislocation in recent months. Brand-name power tools and outdoor products company Stanley Black & Decker (NYSE: SWK) is the other possible stock I believe Buffett was eyeing with $10 billion in hand.

As of this writing on June 5, Stanley Black & Decker is a $10 billion company. Usually, acquisitions require the buyer to pay a premium to get the nod of approval from shareholders. But during the tariff-related stock market plunge in early April, Stanley Black & Decker stock fell to around an $8.5 billion market cap. It was well within range for a $10 billion buyout at this point -- especially with tariff-related cost and margin uncertainty hovering over the company.

Although Berkshire Hathaway doesn't own any shares of Stanley Black & Decker, this isn't reason enough to believe it wasn't the alluded acquisition target.

For starters, Buffett's investment philosophy focuses more on consumer behaviors than it does on innovation. Stanley Black & Decker owns a laundry list of brand-name tool and outdoor brands, including DeWalt, Craftsman, Irwin, Cub Cadet, Lenox, and its namesakes Stanley and Black & Decker. These brands are easily identifiable by consumers and have helped to build trust in the company for more than a century.

Additionally, Stanley Black & Decker is time-tested. This is a company founded in 1843 that's grown organically and through acquisitions of its own. It's increased its base annual dividend in each of the last 58 years, and offers the second-longest streak among U.S. public companies of paying a dividend for 149 consecutive years. Companies don't pay a dividend annually for nearly 150 years by accident. This is a testament that its operating model works.

Despite tariff-related uncertainty clouding the company's near-term outlook, management has taken steps to improve margins over the long run. Its global cost reduction program has resulted in roughly $1.7 billion in pre-tax annual run-rate cost savings since being introduced in mid-2022. Further, its supply chain remains nimble enough that shifting production to Mexico and the U.S. will help it avoid potential tariffs tied to China over the next two years.

Most importantly, Stanley Black & Decker offers a historically tempting valuation discount. Accounting for all the headwinds it's currently working through, shares of Stanley Black & Decker are priced at roughly 11 times forecast earnings per share in 2026. For context, this represents a 37% discount to its average forward-year earnings multiple over the trailing-five-year period.

If there was a $10 billion acquisition to be made by Warren Buffett's Berkshire Hathaway, either Sirius XM or Stanley Black & Decker perfectly fit the mold.

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Sean Williams has positions in Sirius XM. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.