Berkshire to Buy SNC’s AltaLink in Buffett Energy Wager

Berkshire Hathaway Inc.’s energy unit agreed to buy SNC-Lavalin Group Inc.’s AltaLink for about $C3.2 billion ($2.9 billion) in cash to expand in electricity transmission in western Canada.

The deal adds 280 substations and about 12,000 kilometers (7,500 miles) of transmission lines, according to a statement yesterday from the power unit at Warren Buffett’s Berkshire.

The buyer, renamed this week as Berkshire Hathaway Energy from MidAmerican, has been growing through acquisitions under Greg Abel, chief executive officer of the business. Abel, 51, purchased NV Energy, Nevada’s largest electricity utility, last year for $5.6 billion and also oversees subsidiaries including Kern River and PacifiCorp. Buffett told shareholders in a report posted March 1 that the NV deal wouldn’t be Abel’s last.

“He made the point in his letter that MidAmerican retains more of its earnings than any utility company, so they have a lot of cash to play with,” Jeff Matthews, an investor in Berkshire and author of books about the Omaha, Nebraska-based company, said in an interview. “He clearly loves the space.”

Founded in 2002, AltaLink owns more than half the transmission grid in the Canadian province of Alberta and serves 85 percent of its population. Net income for the unit was C$161.6 million on revenue of C$534 million last year, according to a regulatory filing. AltaLink said in a separate statement that it will operate under its current name within the Berkshire business and continue to be based in Calgary.

‘Consistent Interest’

The deal ends a months-long review at Montreal-based SNC about the fate of the AltaLink unit. Canada’s largest engineering and construction company begin weighing options for the business last year as CEO Robert Card sought to exit some infrastructure investments.

“Berkshire has shown a consistent interest for some time in expanding with regulated utility platforms, most recently with the purchase of NV Energy,” said Paul Patterson, an analyst for Glenrock Associates LLC, in a telephone interview. “Given Berkshire’s substantial stake in regulated utilities in the U.S., I don’t think this transaction is surprising.”

Abel, who grew up in Edmonton, Alberta, was named CEO of Berkshire’s Des Moines, Iowa-based energy business in 2008 and has been praised by Buffett for building the operation through deals and capital spending.

Abel was one of three top Berkshire executives seated last year with the board of directors at the company’s annual meeting, along with reinsurance manager Ajit Jain and railroad head Matt Rose, fueling speculation that he could eventually replace Buffett, 83. Berkshire’s 2014 meeting is scheduled for tomorrow in Omaha.

Transmission Infrastructure

“The acquisition of AltaLink represents a great long-term opportunity to invest in Alberta’s critical transmission infrastructure,” Abel said in a statement. AltaLink had C$5.9 billion of assets as of Dec. 31, according to the statement.

The deal is a “catalyst for growth” at SNC as it focuses on its engineering and construction business, Card said in a phone interview. He declined to provide specifics on plans for the sale proceeds.

“For sure SNC is going to acquire something,” said Maxim Sytchev, an analyst at Dundee Securities Corp. in Toronto. “It’s a huge number.”

Sytchev estimates the sale of AltaLink values the business at as much as C$19.40 for each SNC share. Before the deal, he was expecting $15.47.

SNC rose 6.9 percent to C$53 at 9:38 a.m. in Toronto trading. Berkshire climbed 0.5 percent to $194,384 in New York.

‘Robust Bidding’

SNC said in September that it hired hired Morgan Stanley and Royal Bank of Canada to help explore options for AltaLink. Card took over at SNC in 2012 and is reshaping the company after a corruption scandal involving his predecessor that led to a fraud inquiry and investor lawsuits.

“It was a very robust bidding environment,” Card said. “We talked to Berkshire and many others who ended up bidding for this about how they felt about this asset. We were approached by many.”

An initial public offering was among the options under study, and “this deal turned out to be a better deal,” Card said.

The transaction is expected to be completed by the end of 2014, Berkshire said in its statement.

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