Category Archives: Acquisitions

Berkshire Refuses to Get Into a Bidding War Over Oncor

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Will Berkshire raise their $9 billion bid to acquire Oncor Electric Delivery Company if Elliot Management comes in with a higher offer? The answer is no.

Greg Abel, Berkshire Hathaway Energy chairman and CEO, and Warren Buffett, chairman and CEO of Berkshire Hathaway stated the company will stand firm on its $9 billion offer to acquire 80% of Oncor and will not be increasing its offer.

“We appreciate the continued opportunity to collaborate with many stakeholder groups in Texas and thank them for their outstanding support, which sets our offer apart from any other bid,” Abel said. “We’re committed to being an exceptional long-term partner in Texas and our simple, straightforward deal is good for Oncor, its customers and the state.”

Berkshire Hathaway Energy’s bid for Oncor includes 47 regulatory commitments that have the support of 12 key stakeholder groups across Texas. “The strong coalition of stakeholders consistently express the appropriate concerns and necessary protections for Oncor and its customers,” said Abel. “We stand ready to deliver on and exceed the regulatory commitments.”

“Oncor is a strong company with values, management and employees that will fit well with Berkshire Hathaway,” said Buffett. “We already have a number of excellent companies operating in Texas. It is a great place to do business, and we look forward to continuing to invest in the state.”

With new stakeholders signing on to support Berkshire’s bid every day, there is good reason to think that will win its Texas-sized prize. However, if the Oncor deal falls through, Berkshire will receive a $270 million termination fee.

© 2017 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.

Stakeholders Continue to Line Up Behind Berkshire’s Oncor Bid

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Berkshire Hathaway Energy has announced that the Texas Cotton Ginners’ Association and CMC Steel have agreed to support its proposed acquisition of Oncor Electric Delivery Company LLC (Oncor). The growing number of commitments now includes 12 stakeholder groups, including several groups – like CMC Steel – that intervened during former proposed acquisitions of Oncor.

“As we work through the approval process, we’re encouraged that our meetings with stakeholders across Texas continue to confirm that the deal we are proposing is a good fit for Oncor’s customers and Texas,” said Greg Abel, Berkshire Hathaway Energy chairman, president and CEO. “We truly appreciate the support we’re receiving from many groups, and we’re looking forward to closing the deal and welcoming Oncor to the Berkshire Hathaway Energy family.”

Berkshire Hathaway Energy will leverage its financial strength to benefit Oncor customers and Texas. The all-cash deal includes 47 regulatory commitments and ring-fencing that ensures Oncor will continue as a strong electric transmission and distribution company.

The influential Texas stakeholder groups that support Berkshire Hathaway Energy’s proposed acquisition of Oncor include: Public Utility Commission Staff; Cities Served by Oncor; Texas Industrial Energy Consumers; Office of Public Utility Counsel; TXU Energy; NRG Energy; the Texas Energy Association for Marketers (TEAM); the Alliance for Retail Markets (ARM); IBEW Local 69; Targa Pipeline Mid-Continent WestTex LLC/Targa Midstream Services LLC; Texas Cotton Ginners’ Association; and CMC Steel. TXU Energy and NRG Energy represent two of the largest retail electric providers in Texas, with TEAM and ARM representing dozens of Texas electric market participants. ARM participating members include Champion Energy Services, LLC; Direct Energy, L.P.; NRG Retail Companies; and TXU Energy Retail Company LLC.

© 2017 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.

Commentary: Familiar Territory, Berkshire Wins if it Loses

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Warren Buffett and Berkshire Hathaway look to be on the verge of winning Oncor Electric Delivery Co., a Texas-sized prize it has been chasing for the last three years, as the utility struggled under bankruptcy proceedings.

Now, all that stands in its way is a last minute bid by Paul Singer and his hedge fund Elliot Management. The hedge fund is the largest creditor in Oncor’s parent company, Energy Future Holdings Corporation.

Singer scored a recent success when Elliot Management won a delay in finalizing Berkshire’s takeover while it puts together its own offer, reportedly a $9.3 billion bid that would top Berkshire’s $9 billion deal.

The delay moves the bankruptcy court date from August 10 to August 21.

In addition to winning approval from the bankruptcy judge, any deal put together by Berkshire Hathaway or Elliott Management has to pass muster with the Public Utility Commission of Texas (PUC), the agency that regulates the state’s electric and telecommunication utilities, and must rule that any approved acquisition is in the public interest.

The PUC has already rejected two prior takeover bids for Oncor, including last year’s bid from Hunt Consolidated Inc., and April’s bid from NextEra Energy Inc. The failed deals opened the door for Berkshire’s bid.

Berkshire, which entered the energy business in 1999, has built one of the largest utility holding companies, with $85 billion in assets and $17.4 billion in annual operation revenue, as of 2016.

Unlike many failed attempts at merging utilities, Berkshire has repeatedly acquired plum assets, including MidAmerican Energy, PacifiCorp, and NV Energy, and by allowing them to retain their earnings, made them stronger than they were before acquisition.

This is not something that escapes the PUC as it considers who should supply power to 10 million Texas residents, and a host of major manufacturers that need electricity at the lowest possible rates.

As Tony Bennett, president of the Association of Texas Manufacturers, pointed out in a recent editorial, Texas companies in the Oncor service area don’t have a choice of electricity suppliers, so whoever wins the bid has to be focussed on reliable service and low rates, not just the highest return for investors. This is where Berkshire Hathaway Energy excels.

Still, like so many deals that Buffett strikes, he wins even if he loses.

What’s a Hundred or Two Million Between Friends?

Termination fees are familiar territory for Buffett, who walked away with $175 million in 2008 when he refused to get in a bidding war for Constellation Energy. French energy company EDF doubled his offer, but a pile of cash that ran into the hundred millions suited him just fine for his three month pursuit of the Baltimore-based energy wholesaler.

This time, if the Oncor deal falls through, Berkshire will receive a $270 million termination fee.

Not a bad way to lose at all.

But, I wouldn’t bet on Berkshire losing this one.

© 2017 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.

Oncor Plan Would Slash Rates for 54,000 Customers

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Oncor Energy, which Berkshire Hathaway is hoping to acquire through its subsidiary Berkshire Hathaway Energy, has announced that it reached a proposed settlement in its rate case, which was filed earlier this year.

The rate case settlement also garnered wide support within the industry and among consumer groups.

Some 54,000 customers scattered across North, West and West Central Texas were suffering under sky-high electric rates from Sharyland Utilities, which has the highest power delivery rates in Texas.

Consumers waged a campaign to bring down those rates, which were hitting farmers and other large energy users particularly hard.

If approved by the Public Utility Commission of Texas, consumers could expect a 40 percent drop in electricity costs. The settlement would have Sharyland customers become Oncor customers.

In a statement, Berkshire Hathaway Energy commends Oncor’s efforts to achieve a balanced outcome for customers that helps keep rates among the lowest in Texas and preserves the company’s ability to invest in its system at reasonable cost.

“Berkshire Hathaway Energy’s ownership structure is a source of financial strength that uniquely positions us to provide the resources Oncor needs to fund the new equity requirement,” said Abel.

© 2017 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 Supports Oncor’s Plan to Swap Assets with Sharyland

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Berkshire Hathaway has no problem with Oncor planned asset swap with Texas utility Sharyland.

Oncor announced that it had entered into an agreement with Sharyland to swap assets in a transaction valued at approximately $400 million.

Under the terms of the proposal, Sharyland will exchange their retail distribution assets and retail distribution operations for a set of Oncor’s transmission lines in West and Central Texas.

Sharyland and Sharyland Distribution & Transmission Services (SDTS) will transfer to Oncor their retail distribution assets and retail distribution operations located in their Stanton, Brady, and Celeste (SBC) service territories, as well as their McAllen service territory.

Oncor will transfer to SDTS transmission lines of similar value located in West and Central Texas, which Sharyland will operate on behalf of SDTS.

The proposed transaction also means that Sharyland’s approximately 54,000 retail distribution customers will become Oncor customers and, as a result, will see significantly reduced regulated retail delivery rates.

In a statement, Berkshire Hathaway Energy said applauds Oncor and the various stakeholders for developing solutions to ensure continued safe, reliable, and affordable service for customers.

“The problem-solving culture demonstrated by Oncor and its management team will be a great fit with Berkshire Hathaway Energy,” said Greg Abel, Berkshire Hathaway Energy chairman, president and CEO. “The conditions of the agreements are examples of Oncor’s strong commitment to customers; that same commitment is reflected across Berkshire Hathaway Energy’s businesses.”

© 2017 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.

Stakeholders Continue to Line Up for Berkshire’s Oncor Bid

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Berkshire Hathaway continues to line up supporters for its Oncor Electric Delivery Company bid, including from a host of key stakeholders.

The International Brotherhood of Electrical Workers Local 69 and Targa Pipeline Mid-Continent WestTex LLC/Targa Midstream Services LLC are the latest stakeholders to have expressed support for Berkshire’s proposed acquisition of Oncor.

“Support from the IBEW and Targa along with the endorsements we’ve received from other Texas business, community and consumer groups reinforces that our proposal is good for both Oncor’s customers and for Texas,” said Greg Abel, Berkshire Hathaway Energy chairman, president and CEO. “We appreciate the continued and growing support as we work through the transaction process; collectively, these efforts help move the proposal forward to benefit Oncor’s customers, creditors and key stakeholders.”

The announcement brings the total number of influential Texas stakeholder groups that support Berkshire Hathaway Energy’s proposed acquisition of Oncor to 10, including: Public Utility Commission Staff; Cities Served by Oncor; Texas Industrial Energy Consumers; Office of Public Utility Counsel; TXU Energy; NRG Energy; the Texas Energy Association for Marketers (TEAM); the Alliance for Retail Markets (ARM); IBEW Local 69; and Targa Pipeline Mid-Continent WestTex LLC/Targa Midstream Services LLC. TXU Energy and NRG Energy represent two of the largest retail electric providers in Texas, with TEAM and ARM representing dozens of Texas electric market participants. ARM participating members include Champion Energy Services, LLC; Direct Energy, L.P.; NRG Retail Companies; and TXU Energy Retail Company LLC.

© 2017 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 Lines Up Support for Oncor Deal

(BRK.A), (BRK.B)

Berkshire Hathaway Energy has announced the support of new Texas stakeholder groups for its proposed acquisition of Oncor Electric Delivery Company.

The announcement adds to an influential list of Texas business, community and consumer groups that have endorsed Berkshire Hathaway Energy’s bid for Oncor.
TXU Energy, NRG Energy, the Texas Energy Association for Marketers (TEAM) and the Alliance for Retail Markets (ARM) have signed a growing list of regulatory commitments proposed by Berkshire Hathaway Energy and agreed to support approval of the transaction as proposed.

“Today’s announcement illustrates the growing support for Berkshire Hathaway Energy’s proposed acquisition of Oncor,” said Greg Abel, Berkshire Hathaway Energy chairman, president and CEO. “Ours is a different kind of proposal. It’s one that hasn’t been seen before, and we want Texans to know that we will be a stable, long-term partner.”

In addition to the 44 regulatory commitments previously proposed by Berkshire Hathaway Energy, the company today also announced the addition of three more commitments that support the successful competitive energy market in Texas.

“Berkshire Hathaway Energy has worked tirelessly to put together a widely supported deal for Oncor customers, one that supports growing the Texas economy,” said Bob Shapard, Oncor CEO.

TXU Energy and NRG Energy represent two of the largest retail electric providers in Texas, with TEAM and ARM representing dozens of Texas electric market participants.

ARM participating members include Champion Energy Services, LLC; Direct Energy, L.P.; NRG Retail Companies; and TXU Energy Retail Company LLC.

Berkshire believes that having the support of these entities further distinguishes this transaction from those that have been previously proposed and demonstrates a growing momentum that provides the largest infrastructure company in Texas with the backing and financial resources of Berkshire Hathaway Inc.

“We will continue working with the state of Texas and other interested parties to provide long-term value for Texans. Once all necessary approvals are received, we look forward to Oncor joining the Berkshire Hathaway Energy family of companies,” said Abel.

Today’s announcement brings the total number of influential Texas stakeholder groups that support Berkshire Hathaway Energy’s proposed acquisition of Oncor to eight, including: Cities Served by Oncor, Texas Industrial Energy Consumers, Office of Public Utility Counsel, and Public Utility Commission Staff.

© 2017 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.

Clayton Homes Acquires Fourth Site Builder

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Berkshire Hathaway’s Clayton Homes has acquired Oakwood Homes, Colorado’s largest privately held homebuilder and community developer, and the approximately 18,000 lots it owns and controls. The company is the fourth site builder that Clayton has acquired since 2015, and it currently owns homebuilding companies in Missouri, Tennessee and Georgia.

The deal closed on July 3, 2017.

“Oakwood Homes has an impressive history of homebuilding innovation, and practices a relentless commitment to quality and service for its customer base,” said Keith Holdbrooks, president of Clayton home building group. “Oakwood’s self-sustaining operating model, company culture and core values align well with Clayton’s, which is paramount when we acquire a company. We look forward to working together with Oakwood to improve the homebuyer experience while providing greater cost-saving opportunities for homebuyers.”

Founded in 1991 by CEO Pat Hamill, Oakwood Homes builds modern, distinct communities throughout Colorado and Utah that are recognized for their innovative designs, energy efficient homes and highly customizable building processes. The company sold 1,200 homes in 2016 alone, which represents a 20 percent increase from 2015. Oakwood Homes differentiates itself through its commitment to both customer and team-member experiences.

Clayton entered the site-built industry in 2015 through its Clayton Properties division in order to provide industry-leading homebuilding solutions and improve the experience of modern-day homebuyers. Since 2015, Clayton has increased its homebuilder portfolio by acquiring like-minded, innovative companies in strong growth markets, such as Summit Homes in Kansas City, Mo., Goodall Homes in Gallatin, Tenn., and Chafin Communities in Atlanta, Ga.

“After more than two decades of building beautifully functional new homes in Colorado and Utah as a privately held company, we are excited to join forces with Clayton,” said Pat Hamill. “This partnership is part of our strategic vision to continue our steady growth and to provide a very high standard of customer service for our loyal consumers, all while keeping our existing leadership team.”

In 2016, Clayton built more than 42,000 homes. Site built homes are an increasing focus as they have a higher price point than Clayton’s mobile home business.

© 2017 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.

Commentary: Berkshire’s Patience Rewarded in Oncor

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With news that Berkshire Hathaway is acquiring Texas utility Oncor, Warren Buffett has once again shown that he is in the market for big acquisitions that produce solid, dependable revenue.

The all-cash consideration for reorganized EFH is $9 billion implying an equity value of approximately $11.25 billion for 100% of Oncor and is subject to closing conditions, including the receipt of required state, federal and bankruptcy court approvals. The transaction is currently expected to be completed in the fourth quarter of 2017.

Buffett has certainly been patient in pursuing this Texas-sized prize, and if successful, would mean he was able to acquire one of the biggest power-transmission companies in the United States.

Back in September 2014, Berkshire Hathaway Energy and several other energy companies, including NextEra Energy and Hunt Consolidated, signed confidentiality agreements for the purpose of exploring the acquisition of Oncor, which was up for auction due to the April 2014 bankruptcy of electric utility Energy Future Holdings.

Energy Future Holdings went under after being burdened with $40 billion in debt from a 2007 leveraged buyout.

Bankruptcy Drama

Over the past two years, while Oncor went through the bankruptcy process, it repeatedly looked like Berkshire was on the losing end in the pursuit of the utility. It was too bad, as it was the perfect fit for Berkshire, as it continues to build it energy company portfolio.

However, the proposed deal comes because the Public Utility Commission of Texas (PUCT) ended up rejecting NextEra Energy’s deal to buy Oncor, opening the door once again for an offer from Berkshire.

A Texas-Sized Energy Asset

Oncor is a quite a prize. The company 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 122,000 miles of lines and serving approximately 10 million Texans across the state.

Oncor is an excellent fit for Berkshire Hathaway, and we are pleased to make another long-term investment in Texas – when we invest in Texas, we invest big!” said Warren Buffett, chairman of Berkshire Hathaway. “Oncor is a great company with similar values and outstanding assets.”

Greg Abel, Berkshire Hathaway Energy chairman, president and CEO, said, “This partnership combines the strengths of two companies that share a common goal of providing exceptional customer service and a commitment to invest in critical infrastructure that will make the Texas energy grid even stronger and more reliable.”

“By joining forces with Berkshire Hathaway Energy, we will gain access to additional operational and financial resources as we continue to position Oncor to support the evolving energy needs of our state,” said Bob Shapard, CEO of Oncor. “Being part of Berkshire Hathaway Energy is a great outcome for Oncor. Oncor will remain a locally managed Texas company headquartered in Dallas, committed to the communities we serve, and our customers will continue to receive the safe and reliable service they have come to expect from our dedicated team of employees.”

Effective upon closing of the transaction, Bob Shapard will assume the role of executive chairman of the Oncor Board, and Allen Nye will assume the role of CEO of Oncor. “We are excited to begin the regulatory approval process as this transaction has significant support across our key stakeholders,” Nye said. “The stakeholders are eager to obtain a great outcome for Texas.”

“We are pleased to be working with Texas and stakeholders to ensure Oncor continues to be a strong electric transmission and distribution company. Oncor is an exceptional company with great employees and an excellent management team,” said Abel.

Energy Transmission is Great ROE

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 will be a perfect fit for Berkshire Hathaway Energy, and with $935 million in operating revenues and $73 million in net income in the quarter ending March 31, Oncor will put a portion of Berkshire’s over $90 billion in cash to good use.

Growing Berkshire’s Energy Business

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

Energy sector businesses made up 9.5 percent of Berkshire Hathaway’s earnings in 2016.

Now, it looks like Buffett’s patience has been rewarded, and Oncor will help Berkshire pass the $100 billion in energy assets mark.

© 2017 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.

MiTek Industries Acquires Mezzanine International

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Berkshire Hathaway’s MiTek Industries has acquired UK-based Mezzanine International, one of Europe’s leading mezzanine flooring suppliers.

The terms of the acquisition were not announced.

With a focus on European markets, Mezzanine International is a highly regarded leader in the design, prefabrication, and installation of custom work platforms and structural mezzanine systems. In addition to serving the largest global e-commerce providers, the Company’s many customers include leading companies in distribution, processing, aerospace, manufacturing, retail, and entertainment. In order to support the Company’s tremendous growth, in early 2017, Mezzanine International opened a new location in Cologne, Germany.

Established in 1991, Mezzanine International is Europe’s leading mezzanine flooring supplier. Mezzanine International delivers bespoke performance structures, mezzanine decking, and ancillary products to clients across all industry sectors.

The acquisition of Mezzanine International follows another recent acquisition by MiTek in this same sector, Cubic Designs, Inc., a US-based leader in custom work platforms and structural mezzanine systems. Together, Mezzanine International and Cubic Designs can now offer mezzanine platform solutions to their customers on a global scale.

“I am so pleased that Mezzanine International has joined the ranks of a storied company, MiTek Industries, Inc. A vital aspect of this acquisition was the remarkable alignment of our core values with MiTek’s, which is essential to executing our long-range growth plans,” said Scott Chambers, managing director of Mezzanine International. “Given our current design and manufacturing capabilities in Europe, combined with the momentum we are sure to experience with MiTek’s global footprint, formidable brand and resources, we expect growth rates and technology developments that far outpace our competitors.”

“The acquisition of Mezzanine International furthers our strategy for global diversification. Scott and his team have built a growing business that is recognized as a leader in the markets where they compete, while building and maintaining a trust-based culture,” said Mark Thom, MiTek’s CEO. “This is an incredible addition to the MiTek family, and I’m truly excited about the future growth opportunities that we will create together.”

© 2017 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.