Monthly Archives: July 2016

Boston Auto Dealership Group Keeps Getting More Attractive to Berkshire Hathaway Automotive

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When Berkshire Hathaway jumped into the auto retailing business in March 2015, with its $4.1 billion acquisition of the Van Tuyl Group, it added a whole new line of business to the mega-conglomerate.

The Van Tuyl Group was the largest privately owned auto dealership group in the U.S., and instantly made the newly christened Berkshire Hathaway Automotive Group the fourth largest dealership group in the U.S.

The Van Tuyl acquisition was just the beginning, Warren Buffett noted in his 2015 Berkshire Hathaway Chairman’s Letter, stating, “…if we can buy dealerships at sensible prices – we will build a business that before long will be multiples the size of Van Tuyl’s $9 billion of sales.”

BHA got off to a promising start, as that same month it acquired Frank Kent Honda of Fort Worth, Texas.

“This is the beginning of a journey that will have no end,” Buffett noted upon completion of the acquisition. “Cecil and Larry have given us the ideal platform with which to build an auto dealership business that will be thriving and growing 50 and 100 years from now. The fun has just started.”

Unfortunately for Berkshire, the acquisition of also Van Tuyl set off a dramatic rise in auto dealership valuations that has rippled throughout the industry, and frustrated efforts for Berkshire to add new dealership groups at what it feels are reasonable valuations.

At the 2016 Berkshire Hathaway annual meeting, Buffett acknowledged that they “hadn’t had much luck” in acquiring more dealerships.

BHA finally made some progress in June, acquiring North Park Toyota in San Antonio, Texas. The acquisition includes a 20-year lease of North Park Toyota’s 23.7-acre property that includes an option to buy.

The Problem is Soaring Valuations

The steep rise in valuations has kept Berkshire Hathaway Automotive mostly on the sidelines even as the Kerrigan Advisors’ Blue Sky Report showed that U.S. dealership buy/sell activity soared to record highs in 2015. The Report noted “activity by new entrants outpacing public company acquisitions by over four to one.”

The Blue Sky Report showed that while the competition for auto dealerships was fierce in 2015, it did not favor the public companies, which in addition to Berkshire Automotive also includes CarMax and Penske Automotive Group.

“A number of iconic multi-dealership groups came to market in 2015 and were acquired by both established consolidators and new entrants. Faced with this stiffer competition, the publics found it more difficult to compete for larger group transactions, and represented just 7% of the buy/sell market in 2015. Meanwhile new dealership buyers, including family offices, private equity firms, and public conglomerates, acquired 29% of the franchises sold, a stunning accomplishment,” said Erin Kerrigan, Managing Director of Kerrigan Advisors. “We believe new entrants will increasingly shape dealership consolidation and meaningfully impact the future of auto retail.”

The Blue Sky Report went on to note that while the market for auto dealerships is still very active, the market may be peaking.

“In 2015, dealership valuations rose to historically high levels, new entrants made sizable acquisitions, manufacturers approved numerous multi-dealership transactions, and real estate prices returned to pre-recession levels,” continued Kerrigan. “In summary, it was a year that is hard to beat. While the 2016 buy/sell market is expected to be as active as 2015, we anticipate the proportion of sellers completing a successful sale could decline as industry growth plateaus and dealership earnings flatten.”

A Boston Plum Waiting to be Picked

Despite the rise in dealership valuations, or maybe because of them, a plum Boston dealer group looks all the more perfect with its opening of two new dealerships.

Herb Chambers Companies, a privately-held, Boston-based, dealership group with 57 total dealerships, looks to be the perfect fit for Berkshire Hathaway Automotive.

The company already sells more cars than anyone in New England, and in June it opened Herb Chambers Lincoln of Norwood and Herb Chambers Volvo Cars Norwood.

Is it for Sale?

Herb Chambers Companies is owned by Herb Chambers, a former copier salesman who has spent the past thirty years building a first class dealership group that is the 12th largest privately held auto group in the nation.

Herb Chambers has already stated that he would sell if the price is right. He also credits Warren Buffett’s Van Tuyl Group acquisition for boosting his personal net worth to some $1.5 billion, as valuations jumped throughout the whole sector.

Chambers Knows When to Sell

Herb Chambers is certainly not afraid to sell when the time is right. Three decades ago he founded A-Copy America, and after merging it with Ikon Office Solutions, he cashed out with a sale to Ricoh. It was a shrewd move, and Chambers has proved to be a shrewd guy.

With auto sales possibly peaking, now may be the time. Could the perfect exit strategy for Herb Chambers this time involve Berkshire?

© 2016 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.

Warren Buffett’s Greatest Insurance Investment

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What was Warren Buffett’s greatest insurance investment? Was it the purchase of GEICO? How about National Indemnity?

According to Buffett, it was none of those. It was the hiring of Ajit Jain.

In an interview with Best’s Review, Warren Buffett says he made one of his best investments when he chose Ajit Jain to run his reinsurance business nearly 30 years ago. Jain, who is considered one of the front-runners to succeed Buffett as the head of Berkshire Hathaway, is one of the insurance leaders profiled in the July issue.

Jain was hired by Buffett in 1986, and at the time he was 35-years-old and had little experience in the reinsurance business.

Today, Jain is one of Buffett’s most trusted managers, having built Berkshire Hathaway Reinsurance Group into a reinsurance insurance powerhouse with $44 billion in float.

In April, he was given additional duties overseeing Gen Re after CEO Tad Montross retired.

Sounds like a good investment indeed.

© 2016 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.

McLane Company Sues Texas Over “One Share” Rule

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Berkshire Hathaway’s McLane Company, a $28 billion supply chain services company, is suing in federal court over Texas’s “One Share” rule which currently prohibits it from selling alcohol in Texas.

The Alcoholic Beverage Code regulates the alcoholic beverage industry in Texas by establishing a three-tier system where participants in each tier—manufacturers, distributors and retailers—must operate independently. These laws are commonly called “tied house laws,” and prohibit control or influence among the tiers.

McLane Company, based in Temple, Texas, and the Texas Association of Business are suing the Texas Alcoholic Beverage Commission (TABC) claiming that the TABC has taken this common prohibition to an absurd extreme by asserting that even one overlapping share of stock ownership across tiers, whether direct or indirect, violates its interpretation of the law, the so-called One Share Rule.

They assert that the TABC is applying this rule arbitrarily and only in limited instances. They note that in the last year, over 40 manufacturers, distributors and retailers with overlapping ownership had over 2,500 permits approved or renewed by the TABC.

“The TABC’s application of Texas alcohol law defies common sense as the majority of alcohol manufacturers, retailers and distributors have some over-lapping ownership with businesses in other tiers,” said Bill Hammond, CEO of the Texas Association of Business. “The TABC is arbitrarily picking winners and losers, and that is simply not how we operate in Texas.”

They also claim that the TABC is out-of-step with other states that operate under a three-tier system. For example, in New York, Maryland, Arkansas, Kansas, Kentucky and Michigan, companies are prohibited from having interests across more than one tier only if they control or influence the activities of businesses in more than one tier.

“The Texas Association of Business opposes regulatory actions—like the TABC’s so-called One Share Rule—that harm the Texas economy and job creation, for no good reason. We’re taking this action to demand that our government create a level playing field for all business in the State of Texas—anything less goes against the very fabric of our state,” said Hammond. “Texas has succeeded principally because we make it easier, not harder, to do business here. Regrettably, the TABC’s policies do not reflect the vision and philosophy of the state, and through its absurd interpretation of the Alcoholic Beverage Code, it is discouraging business expansion.”

The Texas Association of Business says it believes that the TABC’s erroneous interpretation of the law and inconsistent licensing practices clearly violate the protections afforded to all businesses by the U.S. Constitution.

The Texas Association of Business calls for the TABC to abandon the so-called One Share Rule, and begin enforcing the three-tier system in what it feels is a fair, consistent and legal manner, similar to other state alcohol agencies.

McLane’s parent company, Berkshire Hathaway, owns 2% of Walmart, and this has been the basis for the prohibition.

Berkshire acquired McLane from Wal-Mart in 2003, and roughly one-third of its annual revenues are still from Wal-Mart.

© 2016 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.

Samsung Joins Berkshire as BYD Minority Owners

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Korean multinational electronics company Samsung Electronics Co., Ltd. has purchased a $449 million (3 billion yuan) stake in Chinese auto and battery manufacturer BYD Co. Ltd.

The move comes after Samsung was not included in a list of foreign battery manufacturers approved by China.

In taking the minority position, Samsung joins Berkshire Hathaway, which owns 9.1% of BYD.

According to Bloomberg, Samsung purchased 52.3 million BYD shares at 57.4 yuan apiece in a private placement, and the purchase will decrease BYD Chairman Wang Chuanfu’s ownership roughly 1.9% to 18.8%.

Berkshire’s stake in BYD has worked out well, as it has seen the value of its investment skyrocket as BYD has become a world leader in a wide variety of areas.

What are those areas?

BYD is number one globally in EV vehicles. The company vaulted to the number one spot in 2015 from only being number ranked seventh a year earlier.

BYD is the number one maker of rechargeable batteries, and like Tesla even has rechargeable battery home storage already on the market.

BYD is number one in pure electric buses that come in a variety of sizes. From commuter buses to buses for long distance travel, BYD has been quietly conquering the world, and frankly right now has no major competitors. In April 2016, BYD achieved a major milestone with the production of its 10,000th pure electric bus.

BYD’s also rapidly growing a host of other products that include LED lighting, photovoltaic panels for solar farms, and other electric vehicles such as forklifts.

As for solar panels, in the U.S., BYD’s already has a solar farm with a total of 109MW using its 270,000 PV modules being developed in California. It also has other projects using its modules, including a 65MW plant in Utah, and a 28MW plant in Arizona.

Perhaps you haven’t heard of BYD, but they are no fly-by-night company. BYD has nearly 180,000 employees working in 22 industrial parks across the globe.

BYD and Berkshire Hathaway

In 2008, Berkshire Hathaway bet on BYD’s potential, purchasing 225 million shares. It’s an investment that has paid off handsomely. Berkshire’s original investment of $230 million is now worth roughly $1.77 billion.

No telling how much Samsung’s shares will appreciate, but they obviously want in on a company that is quickly becoming leading company in both the IT industry and automobile industry.

For More on BYD, read the Special Report: BYD, Berkshire’s Tesla.

© 2016 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.

Long Beach Newspaper Calls for All Sides to Work Out Differences on Port Facility

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Is the Southern California International Gateway dead? Both environmental groups and BNSF Railways are asking the same question.

In April 2016, a California superior court judge put a halt to BNSF’s planned 153-acre intermodal rail facility, the SCIG, siding with citizens’ groups suing over environmental concerns.

Judge Barry Good of the Contra Costa Superior Court sided with the Natural Resources Defense Council, which is the lead plaintiff in the lawsuit.

The environmental group filed the lawsuit in June 2015 in Los Angeles Superior Court on behalf of Harbor residents living near the proposed development that would be built on Port of Los Angeles property.

The Plaintiffs contend the proposed Southern California International Gateway rail yard project violates the California Environmental Quality Act and the state and federal Civil Rights Acts.

Specifically, they assert that the facility will increase cancer rates, chances of children developing asthma, and add to chronic air pollution plaguing the region.

At the time, BNSF officials were quick to respond to the ruling. “Upon initial review, we are disappointed, because the decision appears to delay a nationally and regionally significant transportation infrastructure.”

In May, at the Berkshire Hathaway annual meeting, BNSF officials seemed unclear whether the proposed facility was dead or not, even as they stressed that it would bring some substantial environmental benefits.

BNSF notes that the project would clean up an existing truck yard, and BNSF would be investing over $100 million in green technology. The Port of LA’s draft environmental review found that SCIG would have a positive impact on traffic, both locally and regionally, by eliminating millions of truck trips from the 710, reducing congestion near the ports and along the 710 corridor.

Gateway to the Nation

If there is a gateway to the U.S. it is the ports of Los Angeles and Long Beach. Some 40-percent of imported goods sold across the country are shipped through the two ports.

The SCIG intermodal rail facility would be near the ports of Los Angeles and Long Beach. The ports are located approximately 25 miles south of downtown Los Angeles. The port complex is composed of approximately 80 miles of waterfront, and 7,500 acres of land and water, with approximately 500 commercial berths.

The ports include: automobile, container, omni, lumber, and cruise ship terminals; liquid and dry bulk terminals; and extensive transportation infrastructure for cargo movement by truck and rail.

Time to Work it Out?

While environmental groups, the City of Long Beach, and the local school district have decried the project over environmental fears, the local newspaper, The Long Beach Press Telegram, is calling for all sides to resolve the issues, in order to not lose the jobs and other benefits the project would bring.

In an editorial published on July 13, the paper stated that, “The editorial board repeats its position that all sides should sit down and try to work out a solution to this issue.”

The paper went on to state: “We have said there are many positives to the project for the entire region. It will provide hundreds of jobs and help relieve congestion near the ports, and make them more competitive with rival ports.

But we’ve also said this economic development should not come at the expense of the health of students and 30,000 residents who live east of the proposed project.”

Is There a Solution?

The Port of LA’s draft environmental review did find that the SCIG will have a positive impact on traffic, both locally and regionally, by eliminating millions of truck trips from the 710, and reducing congestion near the ports and along the 710 corridor.

NRDC attorneys and scientists have suggested several solutions to reduce the anticipated pollution associated with the project:

1.) Utilization of cleaner Tier 3 and Tier 4 locomotives instead of older, more polluting locomotives;
2.) Expand on-dock rail to eliminate the need for thousands of additional short-haul truck trips;
3.) Use zero-emission container movement systems.

Jobs and the Environment

Perhaps the Press Telegram is right, and the Southern California International Gateway project is not dead after all. If it can be can be built in a way that brings needed jobs and solves the environmental hurdles, it may just surprise everyone and have a long life.

© 2016 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.

Hawaiian Electric Squashes Berkshire Takeover Rumors

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Hawaiian Electric, the electric utility for all of Hawaii, is not for sale according to company spokesmen, noting that “the company is not currently in discussions with any other party regarding a business combination and does not intend to initiate any such discussions.”

Berkshire Hathaway has been actively seeking energy assets, and is currently bidding for Oncor Electric Delivery Company, a regulated electric transmission and distribution service provider that serves 10 million customers across Texas.

Rumors of a bid for Hawaiian Electric by Berkshire Hathaway heated up after the Hawaii Public Utilities Commission denied NextEra Energy’s bid to acquire Hawaiian Electric. The denial of NextEra’s application appeared to open the door for a bid by Berkshire Hathaway Energy. However, Hawaiian Electric is not interested.

Thanks, But No Thanks

Hawaiian Electric released the following full statement:

“Although Hawaiian Electric Industries (HEI) has a long standing policy of not commenting on market rumors and speculation, in view of the frequent questions raised by various stakeholders since the recent termination of the company’s merger agreement with NextEra Energy, HEI is deviating from this policy in this instance.

The business and affairs of HEI are managed under the direction of its boards of directors. In accordance with its fiduciary duties, the boards have determined that it is in the best interests of the company and all of the stakeholders that it serves – including shareholders, customers, employees and communities – to remain independent and to work toward realizing the clean energy future and vibrant local economy we all want for Hawaii. In this regard, and despite statements reported in the media about other unnamed parties rumored to be interested in acquiring HEI, the company is not currently in discussions with any other party regarding a business combination and does not intend to initiate any such discussions.

The company will not provide any updates to the above statement nor otherwise comment on market rumors or speculation.”

Never Say Never

While the statement doesn’t completely slam the door shut, it’s not exactly an invitation to bid. One of the biggest hurdles is local opposition to any outside ownership due to fear of rising rates.

© 2016 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.

Berkshire Hathaway Expands Directors and Officers Insurance Coverage in Asia Markets

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Berkshire Hathaway Specialty Insurance Company (BHSI) is expanding its Executive & Professional Lines capabilities with the introduction of Executive First Public Offering of Securities Insurance (POSI) and Executive First Side A Difference In Conditions (DIC) Liability Insurance in Asia.

“We are pleased to put BHSI’s financial strength to work to give directors and officers the utmost security as they assume directorships and embark on public offerings in uncertain times,” said Patrick Ko, Head of Directors and Officers, BHSI in Hong Kong. “With our POSI, companies and directors and officers can be confident that they are well protected against liabilities associated with capital raising transactions and public security offerings.
In addition, our Excess Side A DIC coverage provides additional peace of mind for individual directors and officers who can find their personal assets at risk due to their respective board positions.”

“BHSI can provide the large-scale capacity these exposures often demand – up to USD $100 million,” said Emily Poh, Head of Executive & Professional Lines, BHSI in Singapore. “In addition, directors and officers can rest assured that their policies reside with an insurer that has both the financial strength and the long-term commitment to see them through any claims ahead.”

BHSI’s new POSI provides coverage for the company (including companies listed on U.S. exchanges), its directors and officers, controlling and selling shareholders, and offering underwriters in litigation arising from a capital raising event, such as an Initial Public Offering (IPO).

BHSI’s Excess Side A DIC coverage is designed for individual directors and officers, including those serving on the boards of U.S. listed public companies. If the company cannot indemnify individuals, the coverage is intended to apply when their underlying D&O Liability Insurance policy cannot respond because its limits have been exhausted or a DIC event occurs.

© 2016 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.

Berkshire Acquires Medical Liability Mutual Insurance Company

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If there is one thing Warren Buffett likes more than anything else it’s probably insurance float, and Berkshire Hathaway just acquired billions more of it.

Berkshire has announced that Medical Liability Mutual Insurance Company (“MLMIC”), the largest underwriter of medical professional liability insurance in New York, has entered into a definitive agreement, pending regulatory and policyholder approval, to be acquired by Berkshire’s National Indemnity Company, following the completion of the conversion of MLMIC to a stock company from a mutual company.

National Indemnity Company is a subsidiary of Berkshire Hathaway Inc., one of the world’s leading insurance organizations.

The transaction is expected to close in the third quarter of 2017, subject to customary closing conditions and regulatory approvals.

“Good things are worth waiting for,” said Berkshire Hathaway CEO Warren Buffett. “MLMIC is a gem of a company that has protected New York’s physicians, mid-level providers, hospitals and dentists like no other for over 40 years. We welcome the chance to add them to the Berkshire Hathaway family and enhance their capacity to serve these and other policyholders for many years to come.”

“We are delighted to partner with such a fine organization. MLMIC has always had strong standing and stability within the challenging New York insurance market, and the arrangement with Berkshire Hathaway will bring policyholders further peace of mind, knowing MLMIC will be able to offer an even higher level of financial security. In addition, MLMIC will be able to expand its offerings, with more customized policy limits, risk-sharing features and services to groups, facilities and other large accounts,” said MLMIC President Robert Menotti, MD.

In a letter to policyholders, Menotti said, “Berkshire Hathaway values our operations, board, staff and endorsed partners. Most importantly, Berkshire Hathaway is committed to MLMIC’s future success and its ongoing dedication to serving policyholders.”

More Float for Berkshire

As of Dec. 31, 2015, MLMIC had a policyholder surplus of $1.8 billion giving Berkshire more of the insurance float that has played a key part in the conglomerate’s growth.

© 2016 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.

PUC Disapproval of NextEra’s Hawaiian Electric Bid Opens Door for Berkshire

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The Hawaii Public Utilities Commission (PUC) has denied NextEra Energy’s bid to acquire Hawaiian Electric Company, the Honolulu-based utility that provides power to all of Hawaii. The denial of NextEra’s application opens the door for a bid by Berkshire Hathaway Energy.

In a statement the PUC said that “…the Commission concluded that while the Applicants demonstrated that NextEra is fit, willing, and able to perform the services currently offered by the HECO Companies, the Applicants failed to demonstrate that the Application is reasonable and in the public interest. In reaching this conclusion, the Commission focused on five fundamental areas of concern: (1) benefits to ratepayers; (2) risks to ratepayers; (3) Applicants’ clean energy commitments; (4) the proposed Change of Control’s effect on local governance; and (5) the proposed Change of Control’s effect on competition in local energy markets.”

The denial came just weeks after Governor David Ige, who had opposed the merger, and has openly questioned NextEra Energy’s commitment to Hawaii’s goal of 100% renewable energy, appointed a new PUC Commissioner.

Renewable Energy? Berkshire’s a Believer

Berkshire Hathaway not only believes in renewable energy, it already has one of the largest renewable energy portfolios in the world. Its subsidiary BHE Renewables encompasses BHE Solar, BHE Wind, BHE Geothermal, BHE Hydro as well as renewable project development and commercial management. BHE Renewables owns solar, wind, geothermal and hydroelectric projects in eight states that produce energy for both the wholesale market and for customers under long-term power agreements.

The company already has 3,877 megawatts of renewable energy capacity, including one of the world’s largest solar farms, the 579 MW Solar Star project in southern California.

Another example of Berkshire’s commitment to renewable energy is in Iowa, where it is aggressively working towards producing 100% of the state’s energy needs through wind power.

In April, Berkshire’s MidAmerican Energy Company announced plans for a $3.6 billion, 2,000 megawatt wind farm in Iowa that will feature 1,000 wind turbines.

Berkshire’s Interest in Hawaiian Electric

Berkshire already has an energy asset in Hawaii. It owns BHE Hydro’s Wailuku run-of-river 10 megawatt hydro project in Hawaii. The hydroelectric project consists of a massive 60-inch pipeline located 2,000 feet above sea level that carries water nearly three miles, transporting it from the Wailuku River diversion all the way to the powerhouse.

In addition, Berkshire recently registered MidAmerican Energy Services LLC as a new business in Hawaii.

There are still plenty of hurdles for Berkshire to overcome before it can acquire Hawaiian Electric, including local opposition that fears outside ownership will lead to higher rates, but it just got a big step closer.

© 2016 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.

Berkshire Hathaway Energy Bidding for Oncor

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Berkshire Hathaway Energy has been confirmed as one of two energy companies bidding for Oncor Electric Delivery Company, a regulated electric transmission and distribution service provider that serves 10 million customers across Texas.

Oncor has been in and out of auction ever since the April 2014 bankruptcy of its biggest shareholder, Energy Future Holdings. The company went under after being burdened with $40 billion in debt from a 2007 leveraged buyout.

NextEra Energy Inc. also has made an offer to acquire Oncor, and is considered one of the other competitors likely to take home the prize.

A Texas-Sized Asset

Oncor is a quite a prize. 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.

The End of a Long Waiting Game

After originally pushing back the auction of Oncor from November 2014 to March 2015, it looked like no auction would ever happen. Instead, the creditors in the holding companies Energy Future Intermediate Holdings and Energy Future Holdings were expected to take ownership of Oncor.

Then, in September 2015, U.S. Bankruptcy Judge Christopher Sontchi agreed to a plan by Hunt Consolidated that would have allowed the company to take ownership with Oncor’s current management remaining in place.

The deal eventually fell apart when Hunt Consolidated didn’t like the terms set by the Public Utility Commission of Texas.

Energy Transmission is Great ROE

Back in June 2014, Warren Buffett proclaimed he was ready to put at least $15 billion into energy generation and transmission assets, and at that time Oncor, with a value of roughly $17.5 billion looked like a good fit.

Transmission lines have been high on Berkshire Hathaway Energy’s wish list of late because they are a great way to put Berkshire’s huge insurance float to work for a high return with very low risk.

The AltaLink Example

In April 2014, BHE made a $2.9 billion purchase of Canadian company AltaLink from SNC-Lavalin Group Inc. The acquisition got the company the transmission lines for Calgary, Alberta, and gives it an 8.75-percent after-tax return on equity, with consumers picking up 100-percent of the tab for any new transmission lines.

Like AltaLink, the acquisition of Oncor would be a perfect fit for Berkshire Hathaway Energy, which currently has $70 billion in assets, including one of the largest portfolios of renewable energy in the world.

© 2016 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.