Berkshire Hathaway to Acquire PacifiCorp in $5.1 Billion Deal

Strategic Insights -

Warren Buffett has made the largest acquisition in eight years with Berkshire Hathaway's decision to buy PacifiCorp, an electric utility serving 1.6 million customers in six states, for $5.1 billion. The purchase will add to Berkshire Hathaway's portfolio of utility companies, with Mr. Buffett stating that energy companies are a good fit for his company due to their need for capital and ability to provide steady returns. Berkshire Hathaway will assume $4.3 billion in debt as part of the deal, which is subject to regulatory approval and expected to close early next year.

Key Takeaways:

  • Berkshire Hathaway agreed to buy PacifiCorp from Scottish Power for $5.1 billion, marking Warren Buffett's largest acquisition in eight years.
  • The deal will add to Berkshire Hathaway's portfolio of utility companies, with Mr. Buffett stating that energy companies provide steady returns and are a good fit for his company.
  • Berkshire Hathaway will assume $4.3 billion in debt as part of the deal, which is subject to regulatory approval and expected to close early next year.
  • The purchase is Mr. Buffett's largest since Berkshire bought the General Re reinsurance business in 1998, and he has cooperated as a witness in an investigation into transactions made by the American International Group.
  • The deal will create a company with $10 billion in annual revenue and will allow MidAmerican Energy Holdings, Mr. Buffett's utility company, to expand its investments in the energy sector.
  • Mr. Buffett has stated that his company will look at energy assets around the world and invest through MidAmerican, with the goal of expanding its investments in the sector over the next 10, 20, or 50 years.
  • The deal comes as a new wave of buyers are showing interest in utilities like water and electricity worldwide, with firms like the Bill and Melinda Gates Foundation and local and American banks among those looking to acquire such assets.
  • Private equity investors have been particularly drawn to the sector due to the steady revenue it provides, allowing them to take out hefty loans against the companies and package and sell them as securities.

Statistics:

  • PacifiCorp serves 1.6 million customers in six states in the Northwest.
  • The deal is worth $5.1 billion, with Berkshire Hathaway assuming $4.3 billion in debt as part of the agreement.
  • PacifiCorp has been a disappointment to Scottish Power investors, with the company failing to increase revenue as predicted and reporting earnings below expectations.
  • Scottish Power reported pretax profit of $1.83 billion for the year ended March 31, with PacifiCorp providing about half of the company's earnings.
  • Berkshire Hathaway has more than $40 billion to invest at the moment, with Mr. Buffett stating that there is no limit to the amount of money his company would have available for the right acquisition.
  • Shares of Berkshire rose $2,010 on Tuesday, or 2.4 percent, to $85,500, while Scottish Power rose 27.75 pence, or more than 6 percent, to 469.75 pence in London.

Sources:

  • "Berkshire Hathaway to Acquire PacifiCorp" (The New York Times, Tuesday, October 16, 2001)
  • "PacificCorp to Be Sold" (Los Angeles Times, Tuesday, October 16, 2001)
  • "Warren Buffett's Berkshire to Buy PacifiCorp" (Wall Street Journal, October 16, 2001)