Buffett May Pursue Utility Buyout After Sokol Departure, CreditSights Says

Warren Buffett’s Berkshire Hathaway Inc. (BRK/A) may pursue acquisitions for its MidAmerican Energy Holdings Co. unit as the billionaire chairman seeks to boost investments in capital-intensive industries, CreditSights Inc. said.

Ameren Corp. (AEE) and Pinnacle West Capital Corp. (PNW) are among the firms that MidAmerican may consider acquiring, the debt-analysis company said in a note late yesterday. Buffett named Gregory Abel as chairman of MidAmerican last week right as David Sokol resigned the post after investing his personal funds in a company that Berkshire bought.

“As long as the Sokol situation does not spiral out of control, we believe MidAmerican will bid on a U.S. utility,” CreditSights analysts Dot Matthews and Scott Greenstein said in a report. The analysts cited the company’s annual fixed income conference, which was held before Sokol’s departure.

Buffett, who keeps all of MidAmerican’s profits at the unit, has been seeking to expand the energy business, which contributed about $1.13 billion to earnings last year at Omaha, Nebraska-based Berkshire. E.ON AG’s U.K. power grid drew interest from Des Moines, Iowa-based MidAmerican before PPL Corp. bought the business for about 3.5 billion pounds ($5.7 billion), according to people familiar with the matter.

Source: MidAmerican Energy Holdings/Via Bloomberg

Warren Buffett keeps all of MidAmerican Energy's profits at the unit. Close

Warren Buffett keeps all of MidAmerican Energy's profits at the unit.

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Source: MidAmerican Energy Holdings/Via Bloomberg

Warren Buffett keeps all of MidAmerican Energy's profits at the unit.

Buffett may seek firms where MidAmerican management can “mend regulatory relationships” for the target company, the analysts said. Berkshire may also consider acquisitions where MidAmerican can “lessen the utility’s cash burden by removing a dividend requirement” or pursue new opportunities for transmission or generation projects, CreditSights said.

CenterPoint, NV

Alan Bunnell of Phoenix-based Pinnacle West, operator of the largest U.S. nuclear power plant, didn’t immediately return calls seeking comment. Susan Gallagher, a spokeswoman for St. Louis-based Ameren, declined to comment as did MidAmerican’s Ann Thelen.

NV Energy Inc. (NVE) and Houston-based CenterPoint Energy Inc. (CNP) may also be targets, CreditSights said. CenterPoint’s Floyd LeBlanc and NV’s Mark Severts declined to comment.

An acquisition wouldn’t hurt MidAmerican’s credit quality because of Berkshire commitment to the company, CreditSights said. Berkshire may fund acquisitions separate from its equity agreement with MidAmerican “if necessary to maintain either credit metrics or ratings,” the debt-analysis company said.

MidAmerican’s 5.75 percent 10-year senior notes due in April 2018 fell 0.1 cent to 111.8 cents on the dollar on April 1, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Buffett announced Sokol’s departure on March 30.

Sokol’s Departure

Sokol, 54, resigned as a top manager at Berkshire after Buffett said in a statement that he had bought about 96,000 shares in Lubrizol Corp. (LZ) in January, less than two weeks before recommending the company as a target, according to a statement from Buffett. Sokol joined Berkshire in 2000 when he sold MidAmerican, which he had led as chief executive officer, to Buffett for about $9 billion. Sokol has said there was nothing unethical about his investment.

Buffett said Berkshire needs acquisitions to build Berkshire, which generates about $1 billion in profit a month. MidAmerican is positioned to increase investments because the unit “retains all of its earnings, unlike other utilities that generally pay out most of what they earn,” Buffett said in February in his annual letter.

MidAmerican, which struck a deal in 2008 to buy Constellation Energy Group Inc., walked away with $593 million that year, including a $175 million termination fee, after Electricite de France SA bought half of Constellation’s nuclear power business.

To contact the reporter on this story: Noah Buhayar in New York at nbuhayar@bloomberg.net

To contact the editor responsible for this story: Dan Kraut in New York at dkraut2@bloomberg.net

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