Finally putting its gigantic $137 billion cash pile to use, Warren Buffett (Trades, Portfolio)’s Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) announced on July 5 it is buying Dominion Energy Inc.’s (D, Financial) natural gas transmission and storage assets for $4 billion.
Including $5.7 billion in debt, the deal, which is the Omaha, Nebraska-based conglomerate’s first since the coronavirus pandemic broke out, is valued at $9.7 billion. Despite the market’s decline, at the Berkshire Hathaway annual meeting in May, Buffett said he hadn’t seen many appealing opportunities.
He must have found some value in Dominion Energy’s assets, though. Under the terms of the agreement, Berkshire Hathaway Energy will acquire 100% of Dominion Energy Transmission, Questar Pipeline and Carolina Gas Transmission, as well as 50% of Iroquois Gas Transmission System and 25% of Cove Point LNG, which is one of six export-import and storage facilities for liquefied natural gas in the U.S. The company will also now carry 18% of all interstate natural gas transmission in the U.S., an increase from 8% currently.
In a statement, Buffett said Berkshire is “proud to be adding such a great portfolio of natural gas assets to our already strong energy business.”
While the acquisition will greatly increase Berkshire’s footprint in the natural gas business, it is also helping Dominion Energy become a pure-play regulated utility company focused on producing clean energy via wind, solar and natural gas.
Dominion Energy Chairman, President and CEO Thomas F. Farrell II said that over the next 15 years, the company plans to “invest up to $55 billion in emissions reduction technologies including zero-carbon generation and energy storage, gas distribution line replacement, and renewable natural gas. In addition, between 2018 and 2025 we expect to retire more than four gigawatts of coal- and oil-fired electric generation.”
"This transaction represents another significant step in our evolution as a company, allowing us to focus even more on fulfilling utility customer needs and positioning us for a bright and increasingly sustainable future," he added.
After the deal closes, which is expected to happen during the fourth quarter, the Richmond, Virginia-based company said it plans to use the after-tax proceeds to buy back $3 billion worth of stock.
The company also revealed on Sunday that as a result of ongoing delays and increasing cost uncertainty, it is cancelling the $8 billion Atlantic Coast Pipeline project with Duke Energy Corp. (DUK, Financial) as its economic viability has come into question.
As a result of the sale, Dominion is now projecting its operating earnings for 2020 will be $3.37 to $3.63 per share, which is down from its previous guidance of $4.25 to $4.60. The company is also planning to cut its dividend in the fourth quarter from 94 cents to 63 cents per share.
With a market cap of $64.73 billion, shares of Dominion Energy were down more than 7% on Monday morning at $76.87. GuruFocus estimates the stock has tumbled nearly 10% year to date.
According to GuruFocus’ Industry Overview, Dominion Energy is the second-largest player in the regulated utilities sector. Other top companies in the space include NextEra Energy Inc. (NEE, Financial), Duke Energy, Southern Co. (SO, Financial) and American Electric Power Co. Inc. (AEP, Financial).
Disclosure: No positions.
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