Possibly so, according to a new analysis by Bloomberg.
Buffett, known as the Oracle of Omaha, signaled in his annual letter to shareholders that Berkshire Hathaway Inc.’s MidAmerican Energy Holdings Co. has the appetite for another “major” acquisition after paying more than $5 billion last year for NV Energy Inc. in Nevada.
NV Energy “will not be MidAmerican’s last major acquisition,” Buffett, 83, wrote in his annual letter to Berkshire shareholders.
Midwestern utilities that meet Buffett’s takeover criteria include Wisconsin Energy and Alliant Energy, according to data compiled by Bloomberg.
Buffett said he is “eager to hear” from companies that meet his usual criteria. He prefers “simple” businesses with at least $75 million of pre-tax income, “consistent” earnings power and “good” returns on equity while having little or no debt. He also prefers to keep current management in place after an acquisition.
Bloomberg reported that Wisconsin Energy, the parent company of We Energies, has a “well-respected management team,” a trait Buffett values. Bloomberg also said Wisconsin has a “favorable” utility regulatory environment.
“He wants to be offered utility assets” and his remarks may increase deal flow, Richard Cook, co-founder of Cook & Bynum Capital Management LLC in Birmingham, Ala., told Bloomberg. If Buffett finds a utility that fits with his existing operations, is priced attractively and offers better than 10 percent returns, “he’s probably willing to buy,” said Cook, whose firm owns Berkshire shares.
Alliant Energy is expanding into renewable energy, which Buffett signaled could be a focus for large investments, according to Morningstar Inc.
So, why is Buffett enamored with the utility industry? “At MidAmerican…meanwhile, two factors ensure the company’s ability to service its debt under all circumstances. The first is common to all utilities: recession-resistant earnings, which result from these companies exclusively offering an essential service. The second is enjoyed by few other utilities: a great diversity of earnings streams, which shield us from being seriously harmed by any single regulatory body.”
Brian Manthey, a spokesman for Wisconsin Energy, and Scott Reigstad, a spokesman for Alliant, said the companies do not comment on takeover speculation. Kelly Groehler, a spokeswoman for MidAmerican, declined to comment on its acquisition plans.
MidAmerican, which generated about $1.8 billion of pre-tax profit last year, is among Omaha, Neb. -based Berkshire’s dozens of non-insurance businesses.
According to Bloomberg’s research, there are 19 utility and pipeline owners with market values from $5 billion to $30 billion that meet Buffett’s minimum profit requirement and have a return on equity exceeding 10 percent.
Utilities are typically “predictable, stable and modestly growing,” Timothy Winter, an analyst at Gabelli & Co., told Bloomberg.
The takeover speculation and chatter are having positive effects on the Wisconsin utilities’ stock share prices. Wisconsin Energy’s stock shares, which trade with the ticker symbol “WEC,” recently rose to $46.91, near its 52-week high of $47.61. Alliant Energy’s stock shares, which trade with the ticker symbol “LNT,” recently rose to $56.75, near its 52-week high of $57.37.
Utilities have traditionally been considered stable investments for retirees, because they generally do not have competition, they pay out regular dividends, they have stable track records with defined geographic territories and they can raise rates whenever their costs rise.
Steve Jagler is executive editor of BizTimes