For the majority part of the past few years, Berkshire Hathaway has been piling on a lot of cash assets. We recently reported that they had unloaded all their holdings in the airline industry and had accumulated an estimate $137.3 Billion in cash and cash reserves.
In the 2009 letter to share holders Buffet wrote: “Having loads of liquidity … lets us sleep well,”. In the 2010 follow up letter to shareholders, he added – “the importance of liquidity as a condition for assured survival,”.
All the above never made Buffet happy, he knew that the buying power of cash is going to decrease over time and the small returns on cash assets can be better utilised.
In a grand announcement after the extended holiday this weekend, Berkshire Hathaway finally announced its largest investment in over 4 years – the $9.7 Billion deal to acquire Dominion Energy Inc.’s natural gas pipeline and storage assets. Here is what the deal gets them:
- 100% control of Dominion Energy Transmission
- 25% stake in Cove Point, Maryland based natural gas facility
- 50% of Iroquois, a natural gas system serving the Northeast
They are however NOT acquiring the 600-mile (West Virginia through Virginia and North Carolina) Atlantic Coast Pipeline, a proposed JV with Duke Energy.
This is a good news for a lot of Berkshire’s Investors who had been wondering in Warren’s ability to identify and take important bets during economic crises. In the recent past, the company had been building on its cash pile, but finally they are out to make investments of a larger magnitude deep into the 2020 pandemic crisis.
“This premier natural gas transmission and storage business has been operated and managed in a best-in-class manner,” said Bill Fehrman, Berkshire Hathaway Energy’s president and CEO. “Acquiring this portfolio of natural gas assets considerably expands our company’s footprint in several Eastern and Western states as well as globally, increasing the market reach and diversity of Berkshire Hathaway Energy.”
“We are honored to be gaining a wonderful group of employees with a wealth of experience that will continue to provide high-quality service for our customers and partners. We look forward to welcoming them to the team, we are fortunate Dominion Energy has entrusted us to preserve and build upon such a remarkable business that will allow Berkshire Hathaway Energy to add $9.7 billion in asset value to the portfolio that currently exceeds $100 billion.”
Greg Abel, Berkshire Hathaway’s vice chairman, non-insurance operations, and Berkshire Hathaway Energy chairman
Greg Abel is one of the key executives at Berkshire, widely viewed as one of the potential successors to Warren Buffet, 89. He has been leading the non-insurance business sectors for BH for a while now and has been instrumental in various key acquisitions.
The transaction is subject to regulatory approvals and is expected to close in the fourth quarter of 2020.
We’re pretty sure the investors are looking forward to the couple of hundred million dollars that this acquisition can potentially start generating for Berkshire Hathaway after spending around 7% of their cash reserves into this acquisition.
0 Comments