Berkshire Hathaway Warren Buffett makes an acquisition after a long period of inactivity. Analysts say a major deal to buy energy company Dominion Energy beneficial to both parties. Berkshire Hathaway is expanding its strong energy business, Dominion Energy gets more opportunities to implement long-term program of transition to zero carbon emissions.
Sunday Dominion Energy (NYSE: D), one of the largest energy companies in the United States, announced the conclusion of a final agreement on the sale of virtually all its assets in the segment of gas transportation and storage Berkshire Hathaway Inc. (NYSE: BRK.A) transaction valued at $9.7 billion, including existing debt of $5.7 billion.
The deal with Dominion will be the largest Berkshire acquisition since its purchase of an industrial company Precision Castparts Corp. in 2016.
The market has long waited for a major transaction from the global investment company, which from the beginning of the pandemic, “was sitting on his big bag of money”. As of the end of March, Berkshire has published the balance of available funds of $137,2 billion in cash.
The company is a world famous investor Warren Buffett in may, it sold almost all its stake in the largest aviation companies in the U.S., and said that “he sees nothing truly attractive” for purchase.
Shares of Berkshire Hathaway (BRK-B) fell by 21% YTD in the first quarter, the company reported net loss (net loss) $49.75 billion, while the same indicator a year ago showed a net profit of $21,66 billion.
The deal with Dominion confirmed the ability of Buffett to bargain “in crisis” and practice “buy from the bottom line” (when the price is low and favorable to buy). Prices for futures contracts for natural gas in the US because of the pandemic coronavirus fell last month to its lowest level in 25 years and since then rebounded slightly.
“It looks like a confirmation of the fact that energy stocks are undervalued today,” said bill SMID, investment officer at Smead Capital Management.
Under the deal, an energy subsidiary of Berkshire Hathaway Energy will acquire 100% Dominion Energy Transmission, Questar pipeline and Carolina gas pipeline and 50% of the gas transmission system Iroquois. Berkshire will also acquire 25% of the Cove Point LNG export, import and warehouse complex for the storage of liquefied natural gas (LNG), one of the six export terminals for LNG in the United States.
The transaction is subject to regulatory approval and expected to be completed in the fourth quarter of this year.
Commenting on the transaction, Warren Buffett said: “We are very proud to add such a large portfolio of assets natural gas company in our already strong energy business.”
The deal will make Berkshire Hathaway Energy in one of the country’s largest enterprises for transportation of natural gas. Its share will account for 18% of total natural gas transportation in the country, compared with a share of 8% previously.
Currently, Berkshire owns 91.1% of the energy division of Berkshire Hathaway Energy, which owns energy company MidAmerican Energy, PacifiCorp and NV Energy, pipelines, wind energy assets and energy businesses in the UK and Canada.
In 2019 the share of the energy division accounted for 12% of operating profit in Berkshire, its President, Greg Abel, is also Vice Chairman of Berkshire.
To strengthen its position in the market, Dominion Energy has recently taken a number of steps to optimize its assets and investments, conducting mergers with Questar Corporation, SCANA Corporation, and the sale of assets to Blue Racer Midstream. Dominion also abandoned their plans to invest in eight major billion-dollar project to build a gas pipeline along the Atlantic coast with Duke Energy. The decision was made with reference to the ongoing delays due to the increased monitoring by regulators and “uncertainty cost” which caused doubts about the economic viability of the investment.
The Dominion deal, with Berkshire also allows energy companies to achieve their goals of profitability and implementation of major long-term programme of transition of electricity production to the level of zero carbon emissions.
A number of States, including new York, California and the birthplace of Dominion – Virginia adopted the law, according to which utilities must go to the level of zero carbon emissions by 2050.
“This transaction represents another important step in our evolution as a company,” said Dominion CEO Thomas Farrell. “Over the next 15 years we plan to invest up to $55 billion in technology for reducing emissions, including production without carbon fuels and energy storage, replacing distribution lines and renewable natural gas. This narrowing of focus will enable us to increase the forecast long-term earnings growth by about 30%”.
Source:
The Website Dominionenergy.com
