How Berkshire Could Deploy $6 Billion
Buffett could buy out the minority interests in Berkshire Hathaway Energy
Sometimes the most certain investment you can make is to increase your ownership in a business that you already own and have followed for many years. This is straight forward enough when we are dealing with publicly traded stocks, but it is also quite common to buy out business partners in privately held companies. However, entering into a transaction with someone you have been partners with for decades raises some challenges that do not exist when buying stock in the open market.
Many Berkshire Hathaway shareholders do not realize that the company only owns 91.1% of Berkshire Hathaway Energy (BHE). Berkshire Hathaway’s partners in BHE are Greg Abel, Berkshire’s Vice Chairman of non-insurance operations and the estate of the late Walter Scott Jr., a former member of Berkshire’s Board of Directors. Mr. Abel owns 1% of BHE and Mr. Scott’s estate owns a 7.9% interest.1
Walter Scott Jr. passed away on September 25, 2021. Mr. Scott and Warren Buffett were lifelong friends. Mr. Scott joined the board of Berkshire Hathaway in 1988 and he was a significant minority shareholder of MidAmerican Energy at the time Berkshire acquired control of MidAmerican in 2000. MidAmerican was rebranded as BHE several years later. Mr. Scott retained most of his interest in BHE until his death, although he did sell some BHE shares back to Berkshire over the years.
There are reasons to believe that Berkshire Hathaway may be in a position to purchase the remaining minority interests in BHE for a valuation in the range of $5-6 billion. This would represent a major acquisition about half the size of Berkshire’s recent agreement to acquire Alleghany for $11.6 billion.
Let’s take a brief look at what BHE’s valuation looks like today and how a deal with Mr. Scott’s estate and Mr. Abel could be fairly structured.