It’s not every day that the Oracle of Omaha drops $9 billion on a company and becomes responsible for delivering power to more Texans than anyone else. And yet that’s just what Warren Buffett has done, agreeing to buy the parent of Oncor Electric Delivery to add to his growing Berkshire Hathaway Energy business, which he said two years ago can grow “as far as the eye can see.”
The response has been, well, underwhelming. Sure, Buffett is avenging his nearly $1 billion loss on Energy Future Holdings bonds 10 years ago, after which he said he wished he’d never heard of the company which he’ll now own. But, well, people were expecting him to do something really big like buy Costco, 3M or Hershey. After all, this does nothing, really, to cut into Berkshire’s nearly $100 billion cash hoard, since it earns twice as much as Energy Future’s price in a quarter. And it does nothing to Berkshire’s shares.
It takes a lot these days to move Berkshire's stock, and a bolt-on deal just doesn't cut it, even though the transaction makes sense and the price was right. Berkshire's class A shares, which trade for $255,450 apiece, briefly posted a tiny gain Friday morning before slipping. They're up less than 5 percent on the year, trailing the S&P 500 and headed for their second-worst annual performance in six years (the shares fell in 2015).
Since the Oncor deal is about as boring as a $9 billion deal can be, we’re left reading tea leaves to answer the question, “What does it really mean?” Some of these answers are easier to come up with than others, like this one.
“Berkshire has a too-much-capital problem,” said David Rolfe, a fund manager who oversees about $6.5 billion including stock in Buffett’s company. Investing more in utilities “is a very attractive solution….”
While the railroad industry long ago consolidated, ownership of electric utilities is more fragmented. That gives Berkshire opportunities to add to its stable over time.
Speaking of time, isn’t Warren Buffett 86 years old? Surely, that means the Oncor deal is a sign of who he’s picked to take over?
The latest deal “shows a lot of confidence in Greg Abel,” said Jim Shanahan, an analyst at Edward Jones. “This would be a sizable bolt-on acquisition to BH Energy….”
Abel’s emergence takes on added importance because Berkshire is preparing for a new generation of leaders to eventually replace Buffett, 86, who has run the company for most of his adult life. The energy executive is also a director at Kraft Heinz Co., the packaged-food company controlled by Berkshire and 3G Capital.
Investors consider him a top candidate to succeed Buffett, 86, at the Omaha, Nebraska-based parent company's helm.
So that’s what the mercurial Oracle is up to. We get what you’re saying, Warren. Now get out there and spend some real money on something.
Buffett bets big on power with $9 billion Oncor deal [Reuters]
Warren Buffett’s Oncor Play Shows Berkshire’s Energy Ambitions [WSJ]
Buffett’s Unsexy Oncor Deal Needs an Encore [Bloomberg]
Buffett Keeps Building His Energy Unit as Far as the Eye Can See [Bloomberg]
Buffett’s ‘World-Leading’ Deputy Abel Delivers With Oncor Deal [Bloomberg]