Monthly Archives: September 2014

Is There an Oncor Performance in Berkshire’s Future?

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Berkshire Hathaway’s Berkshire Hathaway Energy (BHE) has been aggressively expanding its assets with $15 billion in recent acquisitions. Now, the company could be one of the bidders for Energy Future Holdings’ Oncor.

Berkshire and several of the energy companies, including NextEra Energy, signed confidentiality agreements for the purpose of exploring the acquisition of Oncor.

What is Oncor?

Oncor is a regulated electric transmission and distribution service provider that serves 10 million customers across Texas. The company has the largest distribution and transmission system in Texas; with approximately 119,000 miles of lines and more than 3 million meters across the state.

Oncor is owned by a limited number of investors, including majority owner, Energy Future Holdings Corp.

What’s the price?

Oncor is estimated to be worth than $17.5 billion, which puts it in line with Warren Buffett’s goals to acquire more “elephants” in the $20 billion range.

In June, Buffett noted that Berkshire had already poured $15 billion into acquiring energy companies and he declared “There’s another $15 billion ready to go, as far as I’m concerned.”

Oncor fits the bill

Transmission lines have been high on BHE’s list of late. In April, the company made a $2.9 billion purchase of Canadian company AltaLink from SNC-Lavalin Group Inc. (TSX:SNC).

A Growing Energy Portfolio

Berkshire Hathaway Energy currently has $70 billion in assets, including one of the largest portfolios of renewable energy in the world.

Total revenues in 2013 were $12.6 billion, with the total generation capacity owned and contracted exceeding 34,000 MW. 25% of this energy was produced from renewable or noncarbon sources.

Berkshire Hathaway Energy’s combined subsidiaries provide energy to 8.4 million customers and end-users.

With Berkshire’s over $60 billion in cash just waiting to be deployed, there could be an Oncor performance in Berkshire’s future.

© 2014 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

BNSF Expansion Heads South to Mexico

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While much has been written about BNSF’s booming oil transport business in the Bakken formation in North Dakota, Berkshire Hathaway’s wholly-owned railroad is also looking south of the border for growth opportunities.

Of particular focus is expanded businesses with Mexican railroad Ferromex to haul automobiles and trucks assembled in Mexico north to Chicago. The vehicles leave from Mazda and Honda assembly plants that recently opened in Silao in Guanajuato state and flow through access points in El Paso, Texas, owned by BNSF.

Ferromex, a subsidiary of Grupo Mexico, is Mexico’s largest cargo carrier, and hauls 17% of Mexico’s total cargo.

Ferromex recently expanded its FXE Silao Intermodal Facility inside the Inland Port of Guanajuato in Silao, Guanajuato.

According to BNSF, the route offers “a centrally located intermodal hub within 100 highway miles of the Bajio’s major manufacturing centers of Leon, Irapuato, Celaya, Salamanca, Queretaro and Aguascalientes.”

A Lucrative Market

The move cuts BNSF in on the lucrative business that is primarily going to Kansas City Southern and Union Pacific Corp. through Laredo, Texas.

BNSF’s access point in El Paso, Texas, has the downside of some 360 miles of extra travel when heading east to Chicago, as El Paso is roughly 600 miles west of Laredo. However, BNSF’s intermodal transport has the advantage for goods moving west to Los Angeles.

Bloomberg reports that cargo hauled both to and from Mexico by rail is booming, with $69.8 billion in goods hauled annually.

“Our partnership with Ferromex to launch this service from Chicago to Silao means that automakers and manufacturers in the U.S. and Mexico will now have direct access to the advantages of intermodal rail in the Bajio region,” said Steve Bobb, BNSF executive vice president and chief marketing officer. “This service offers Mexico’s fast growing manufacturing sector in the Bajio region a simple way to reduce trucking costs and delays.”

BNSF also notes that moving goods by rail has a distinct advantage over trucks when crossing the border because it avoids congested highway bridges.

© 2014 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results

BH Media targets Jersey Shore

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Move over Snooki! The Jersey Shore is the latest target for Berkshire Hathaway’s growing newspaper empire.

BH Media Group is continuing its expansion in small and medium-sized markets with the acquisition of the newspapers and publications of the Catamaran Media Group.

Catamaran publishes 12 weekly papers, with circulations ranging from 7,000 up to 15,000, serving the southern New Jersey shore area. While the individual circulations are small, the combined circulations exceed 111,000.

Also, acquired from Catamaran by BH Media Group are the SandPaper and Free-Time publications, which are weeklies covering Cape May, Ocean City and the greater area during the summer tourist seasons. The two publications have a combined circulation of 60,000.

In 2013, BH Media Group acquired a 50% interest in Catamaran when it purchased 100% of The Press of Atlantic City, a daily paper serving Atlantic City, New Jersey. The newspaper has a daily print and online readership of 273,000.

Mark Blum, The Press of Atlantic City’s publisher, will add the duties of publisher of the Catamaran publications to his duties.

Growth Strategy

BH Media Group continues to look aggressively for additional print media properties. It shuns the major markets, with Buffett having shown no interest in bidding for the Washington Post, which went to Amazon’s Jeff Bezos for $250 million in the fall of 2013. Instead, BH Media prefers to pick off the smaller markets that collectively having millions of readers and millions in revenues.

In addition to the publications acquired from Catamaran, BH Media Group owns 69 newspapers and publications located in Virginia, North Carolina, South Carolina, Alabama, Florida, Texas, Iowa, Nebraska, Oklahoma, and New Jersey.

To read a Special Report on BH Media Group’s revenues and acquisition strategies see BH Media Finds Multiples Success.

© 2014 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

One-Person Crews Nixed for BNSF

It’s back to the drawing board for BNSF’s plan to reduce labor costs. The Sheet Metal, Air, Rail and Transportation Workers union voted “no,” defeating a proposed new contract that would have allowed BNSF to employ one-person crews over roughly 60-percent of its routes.

The one-person crews would have been allowed instead of the standard two-person crews, provided that a remote-site-based Master Conductor is using monitoring technology known as Positive Train Control (PTC).

The trains would have had a locomotive engineer but no other onboard crew.

Declining Crew Costs

Even without the change crew costs for railroads have been steadily dropping over the past four decades. As recently as the 1970s, various states mandated as many as six employees per train.

BNFS had proposed union concessions that would have diminished at least a portion of its expected savings through increases in the pay of conductors and ground service workers.

© 2014 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Special Report: Can Berkshire’s Nebraska Furniture Mart go for $2 billion with Dallas store?

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A furniture chain that produces over a billion dollars in annual revenue is a big deal, and it’s an even bigger deal when the chain has only three stores.

This is the case with Berkshire Hathaway’s Nebraska Furniture Mart (NFM), which with only 3 stores located in Omaha, Nebraska; Kansas City, Kansas; and Des Moines, Iowa, generates almost $1.04 billion in annual revenue.

That’s enough business to land NFM on the National retail federation’s “Hot 100” for 2014 despite its limited number of outlets.

The big question is whether NFM can reach $2 billion in annual sales when it opens its fourth store in the spring of 2015 at The Colony of Dallas-Fort Worth, Texas. Dallas-Fort Worth is the 4th largest metropolitan area in the United States.

Bigger is Best

NFM is known for its mega-sized stores, which include its flagship 420,000 square-feet facility in Omaha.

The new Dallas-Fort Worth store will up the ante, boasting a 1.9 million-square-foot facility featuring a 560,000-square-foot showroom that is expected to generate over $600 million in revenue annually.

A New Real Estate Play

Flying in the face of the adage that the era of the mall is dead, with retail migrating more and more to the internet, NFM is crafting a powerful regional draw that takes up lots of actual physical space rather than just cyberspace.

NFM stores have traditionally been stand-alone facilities, but with the new Dallas store NFM is developing a 400+ acres, 3.9 million square-feet mix of retail, entertainment, dining and attractions that is going by the name of Grandscape.

In addition to retail, the facility will include a hotel and amphitheater, office space, and ±300 multi-family units. NFM is betting that 18 million visitors will come to Grandscape each year, with 8 million of those visitors hopefully shopping at Nebraska Furniture Mart.

Excitement is running high even among the retailers that will be outside of the actual Grandscape footprint, and some are planning to build duplicate stores on either side of the highway to take advantage of Grandscape’s anticipated drawing power.

Average household income in the 12 county area is $57,431 with a total population in North Texas of 6.5 million. In addition, NFM believes it can draw from a huge four-state area with people traveling from as far as 300 miles away.

Revenue Projections

Is $2 billion in annual revenue realistic for four stores? Even four mega-stores? NFM is projecting that sales will grow 7% annually for the first decade with 3% growth thereafter. While 7% annual growth sounds optimistic, it is less than half of NFM’s 15.4% growth in sales in 2014.

Perhaps the bigger question is who says you have to stop at four stores?

© 2014 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results