Today's stock market
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As for individual stocks, two companies made major acquisition news: Warren Buffett's Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) bought an electric utility, and Campbell Soup Company (NYSE:CPB) added to its lineup of healthy food.
Berkshire makes a big energy buy
Berkshire Hathaway Energy (BHE), a subsidiary of Berkshire Hathaway, announced that it will be buying Texas-based Oncor, an electric transmission and distribution service. Berkshire will invest $9 billion in an all-cash deal to acquire Energy Future Holdings Company, which is emerging from Chapter 11 bankruptcy and owns 80% of Oncor. The deal is expected to close in the fourth quarter of 2017. Shares of Berkshire finished the day up half a percent.
"Oncor is an excellent fit for Berkshire Hathaway, and we are pleased to make another long-term investment in Texas -- when we invest in Texas, we invest big!" said Buffett in the press release. "Oncor is a great company with similar values and outstanding assets."
Oncor delivers electricity to 10 million Texas customers over the largest distribution and transmission system in the state, according to the company. BHE operates a number of utilities, businesses with characteristics that Buffett values highly: steady, dependable cash flows that are protected by regulation, as well as earning power that can survive economic downturns. By snapping up the business from the distressed, debt-laden parent company, Berkshire will almost certainly be able to reduce significantly the cost of debt and make the business more profitable.
This latest savvy acquisition is the biggest by Berkshire since last year's purchase of Precision Castparts for $32 billion, the company's largest ever.
Campbell Soup buys...soup
Campbell Soup announced yesterday after market close that it is acquiring Pacific Foods of Oregon, a maker of organic broths and soups, in a $700 million cash deal. Pacific is a 30-year-old company with 540 employees that produced $218 million in revenue in the last 12 months. It operates a certified organic plant in Oregon and focuses on foods that are free of additives, preservatives, allergens, and GMOs. Shares of Campbell finished basically flat on the day.
"Pacific is an authentic brand with a loyal consumer following," said Campbell CEO Denise Morrison in the press release. "The acquisition allows us to expand into faster-growing spaces such as organic and functional food."
The acquisition makes sense for Campbell, which has been trying to develop health-conscious offerings but has not been able to generate hoped-for growth. The stock has lost more than 14% this year as the company has struggled not only with its own internal challenges, but with an environment where top-line growth for food stocks has been hard to come by. The price tag of 3.2 times revenue is steep for a food company and has some analysts wondering if Campbell overpaid, but with developments like Amazon's purchase of Whole Foods Market, Campbell may have felt the need to double down on its healthy-food bet to eke out some growth.