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MidAmerican Energy Holdings, the energy unit of Warren Buffett’s Berkshire Hathaway investment company will buy Nevada’s largest utility, NV Energy, for $5.6 billion.
The announcement was made on Wednesday that MidAmerican Energy Holdings will become the world’s largest utility owner, serving 8.4 million consumers, after it purchases NV Energy Inc. for $23.75 a share, a 23% premium on the day’s closing price.
Greg Abel, the CEO of MidAmerican, explained that they’re “investing in a management team we believe in, we’re investing in quality assets. We see, fundamentally, there will be underlying economic growth in Nevada.”
Buffett has been looking for capital intensive businesses in which to invest as looks to spend parts of the $49.1 billion in cash that his company had at the end of March.
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Berkshire Hathaway was interested in investing in renewable energy companies after it deemed that utilities had become over-valued. CFO Patrick Goodman, said at the end of last year that, “as a cash buyer, we will be looking at utilities if pricing comes in a bit.”
Valuations must have fallen sufficiently for them to accept this deal, a deal that analysts at Wells Fargo & Co. believe “could serve to remind investors of the attractive fundamentals underlying the regulated electric utilities.”
Buffett has always liked utilities, stating that they offer good earnings, even during times of economic difficulty, and will always provide decent returns on capital invested, as long as the infrastructure is maintained to meet customer’s needs. In 2006 Buffett remarked that owning utilities was “not a way to get rich,” but “it’s a way to stay rich.”
By. Joao Peixe of Oilprice.com
Joao is a writer for Oilprice.com