It's Not All About Buffett and His Elephants

The "StressTest" column appears every Thursday on Fool.com. Check back weekly, and follow @TMFStressTest on Twitter.

Berkshire Hathaway  (NYSE: BRK-A  ) (NYSE: BRK-B  )  subsidiary is spending a whopping $5.6 billion on an acquisition, and it appears that Warren Buffett has very little to do with it.

MidAmerican Energy, the utility holding company under the Berkshire umbrella, is snapping up Las Vegas' NV Energy  (NYSE: NVE  ) . Once you throw in NV Energy's debt, the deal weighs in at a cool $10 billion.

There's a lot that's not surprising about the acquisition. The size, if anything, is small. Buffett's been very vocal about his desire to make "elephant"-sized purchases. Nor is it surprising that the conglomerate is expanding its reach with a steady utility business. These types of businesses add stability to the insurance and consumer-goods-heavy Berkshire. And it shouldn't be all that surprising that the price for NV Energy doesn't look all that cheap. If the Heinz  (UNKNOWN: HNZ.DL  ) deal reminded us of anything, it's that Buffett is willing to shell out a "full" price for a good buy.

But what may surprise a lot of investors is that by all appearances, Buffett had very little to do with this multibillion-dollar acquisition. Greg Abel, the CEO of MidAmerican, appears to have been firmly in the driver's seat on this one. Sure, Buffett knows that Abel is tapping MidAmerican's cash resources for the billions to purchase of NV Energy -- he even chimed in on MidAmerican's press release that the company is "a great fit for Berkshire Hathaway." But this was very much the Greg Abel Show.

This should be a notable positive for Berkshire investors for at least a couple of reasons. First, we're seeing the empowerment of key Berkshire Hathaway executives in action. With many investors fretting about the day that Buffett is no longer at the helm of Berkshire, this provides a concrete example of how current managers at the company can move it forward and drive real growth -- including through acquisition -- without a starring role from Buffett. 

In addition, this underscores what promises to be a continued theme for Berkshire on into the future: the "bolt-on" acquisition. As my fellow Fool Steve Symington noted earlier in the year, Berkshire spent more than $2 billion on bolt-on buys in 2012. These deals are great because they require little involvement from Berkshire's top brass -- particularly Buffett and Charlie Munger -- and provide the opportunity to expand the company's presence in an already-established market. This is how Berkshire has carved out such a strong and diversified position in the insurance industry, and I could easily see continued action like this across its other business lines.

NV Energy itself should be a great addition for MidAmerican. Based on its numbers, it looks like a well-run operation. And while Nevada -- and Las Vegas in particular -- was hit especially hard in the housing downturn, it's a region that may offer above-average growth in the years ahead. But while the specific NV Energy addition is nice, what the deal says from a bigger-picture perspective may be even more promising for Berkshire Hathaway shareholders.

Is Berkshire a buy?
Thanks to the savvy of investing legend Warren Buffett, Berkshire Hathaway's book value per share has grown a mind-blowing 586,817% over the past 48 years. But with Buffett aging and Berkshire rapidly evolving, is this insurance conglomerate still a buy today? In The Motley Fool's premium report on the company, Berkshire expert Joe Magyer provides investors with key reasons to buy as well as important risks to watch out for. Click here now for instant access to Joe's take on Berkshire!


Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2461821, ~/Articles/ArticleHandler.aspx, 9/2/2014 6:17:59 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement