Warren Buffett finally found his next deal in the age of crisis.
Warren buffett
Its Berkshire Hathaway Inc., which has remained relatively quiet during the tumult of the coronavirus pandemic, broke its silence at the end of a holiday weekend with its biggest acquisition in more than four years. Dominion Energy Inc.’s $ 9.7 billion deal for natural gas pipelines and storage assets signaled to the market that Buffett is willing to jump despite his cautious tone in May about the pandemic, according to David Kass, professor of finance at the University. from the Robert H. Smith Maryland School of Business.
“He is willing to make investments now, quite a considerable amount,” said Kass. “It is very positive that I am sending a signal for the right deal at the right price, $ 10 billion or more, ‘We are ready to start, we are ready to invest.'”
Buffett, who turned Berkshire into a $ 434 billion conglomerate, built his reputation as an investor capable of plummeting through volatile markets to reach unique and complicated deals in past crises. After being hampered on the acquisition front during the recent stock bull market, Buffett still failed to reach any deals during the initial stages of the pandemic and even left his stakes in major U.S. airlines.
His inability to make a major acquisition has recently come under scrutiny by his critics, who have argued that Buffett has lost his ability to carry out the game-changing transactions that helped bring Berkshire to the ranks of companies. Most Valuable Public Utilities Now, the deal to buy substantially all of Dominion Energy’s natural gas transmission and storage assets for $ 4 billion, along with the assumption of $ 5.7 billion of debt , shows that Buffett is willing to put his money to work, Kass said.
“We are very proud to add such a large portfolio of natural gas assets to our already strong energy business,” Buffett, chief executive officer and president of Omaha, Nebraska-based Berkshire Hathaway, said in a statement Sunday.
“I am inspired to see that since you are bearish you are still willing to make acquisitions where you think it makes sense and where you meet Berkshire’s hurdles,” said Darren Pollock, portfolio manager at Cheviot Value Management, which invests in Berkshire Stocks. .
Buffett has considered his energy business as one of the “top dogs” of Berkshire’s uninsured operations along with his railroad. The Berkshire purchase expands its share of the sector, adding more infrastructure to handle natural gas to its already extensive energy operations in states like Nevada and Iowa. Berkshire also struck a deal at a low market point. Natural gas futures in the United States fell last month to their lowest point in 25 years and have recovered slightly since then.
“This seems to be a confirmation that commodities like energy are undervalued,” said Bill Smead, chief investment officer at Smead Capital Management, which owns the Berkshire stock, in an emailed comment. “At the bottom, assets move from weak hands to strong hands.”
Berkshire is deepening a business that faces increasing scrutiny amid energy companies’ push to move away from fossil fuels. In its own statement on Sunday, Dominion Energy cited its goal of reaching zero net emissions by 2050.
The deal also highlights the work of one of Buffett’s key MPs, Greg Abel, who has run the energy business for years and is now President of Berkshire Hathaway Energy along with his role as Berkshire Vice President for all non-insurance companies. Abel has built a reputation as a key negotiator for Berkshire with the purchase of NV Energy in 2013 and even the battle to buy Oncor Electric Delivery Co., which ultimately did not join. Abel is seen as a possible successor to 89-year-old Buffett.
The Dominion deal will become Berkshire’s largest acquisition ranked for business value since its purchase of Precision Castparts Corp. in 2016. Still, Buffett ended the first quarter with a record $ 137 billion on hand and has been longing for an “elephant size acquisition” to put some of your cash to work. The total business value of the Dominion deal would represent about 7 percent of that total.
“It is not something that is going to move the needle from a balance point of view, but it will produce several hundred million dollars a year in net income for Berkshire,” Pollock de Cheviot said. “That is not an insignificant sum. That builds up over time. “
Bloomberg.com
