“I’m inspired to see that, given that he’s bearish, he’s still willing to make acquisitions where he thinks it makes sense and where it meets Berkshire’s hurdle points,” said Darren Pollock, a portfolio manager at Cheviot Value Management, which invests in Berkshire shares.
Buffett has considered its energy business one of the “lead dogs” of Berkshire’s non-insurance operations alongside its railroad. The purchase expands its hold in the sector, adding more infrastructure to handle natural gas to its already sprawling energy operations across states such as Nevada and Iowa. Berkshire also struck the deal at a low point in the market. Natural gas futures in the U.S. dropped last month to their lowest point in 25 years and have recovered just slightly since then.
“This looks like confirmation that commodities like energy are undervalued,” Bill Smead, chief investment officer at Smead Capital Management, which owns Berkshire shares, said in an emailed comment. “At the bottom, assets move from weak hands to strong hands.”
Berkshire is digging deeper into a business that’s been facing increasing scrutiny amid the push for energy companies to shift away from fossil fuels. In its own statement on Sunday, Dominion Energy cited its target to reach net-zero emissions by 2050.
The deal also highlights the work of one of Buffett’s key deputies, Greg Abel, who led the energy business for years and is now chairman of Berkshire Hathaway Energy alongside his role as Berkshire’s vice chairman for all non-insurance businesses. Abel gained a reputation as a key dealmaker for Berkshire with the 2013 purchase of NV Energy and even the battle to buy Oncor Electric Delivery Co., which didn’t ultimately come together. Abel is viewed as a potential successor to Buffett, 89.
The Dominion deal is set to be Berkshire’s largest acquisition ranked by enterprise 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 hankering for a major acquisition to put a chunk of cash to work. The Dominion agreement’s total enterprise value would account for about 7% of that total.
“It’s not something that’s going to move the needle from a balance-sheet standpoint, but it’ll produce several hundred million dollars a year in net income to Berkshire,” said Cheviot’s Pollock. “That’s no paltry sum. That adds up over time.”
This article was provided by Bloomberg News.