The newly competitive energy environment can lead to surprising payoffs. In late 2008, for example, MidAmerican Energy bid $4.7 billion to acquire Constellation Energy, a Baltimore-based power company then teetering on bankruptcy. The sweetheart price was quickly topped by a French competitor, leaving MidAmerican Energy at the altar. But the merger agreement’s breakup fee kicked in. Combined with profit on the shares it had acquired, Berkshire netted more than $1 billion.56 This transaction is just one example of how Berkshire avoids participating in auction processes with multiple buyers bidding for the same company. An auction often induces bidding based on the emotional desire to win rather than cold business analysis, a result behavioral economists call the “winner’s curse.”57
From 2008 to 2013, MidAmerican Energy and Berkshire staked billions more acquiring a potpourri of assets concentrated in alternative energy sources, especially wind and solar, including Alta Wind, Bishop Hill Wind, Juniper Wind, and Topaz Solar Farms. When current projects are completed, MidAmerican’s investments in renewable energy will add up to $15 billion.58
From an investment viewpoint, regulated public utilities may not promise outsized payoffs, but they are secure investments with reasonable returns. In addition, MidAmerican’s other energy investments promise sizable returns, particularly as industry consolidation accelerates.59
In 2013, the two struck again with a replay of the 2005 PacificCorp deal, jointly investing $5.6 billion to acquire NV Energy, whose principal businesses are Nevada Power Company and Sierra Pacific Power Company. MidAmerican Energy, now led by Abel, continues to hunt for such opportunities to invest its capital as well as Berkshire’s. As it does, Berkshire’s largest investment pipeline will expand to funnel massive amounts of capital into projects as far afield as hydro power, erecting a deep and wide moat around MidAmerican. In 2014, the two invested $2.9 billion to acquire AltaLink, a Canadian power transmission company, and the same week announced the new name of the old MidAmerican: Berkshire Hathaway Energy.
For Berkshire, the economic value of subsidiary acquisitions has compounded as their number and size have increased. They are vehicles for allocating large amounts of capital. In each of 2012 and 2013, for example, Berkshire’s subsidiaries made more than two dozen acquisitions. Transaction values ranged from less than $2 million to more than $1 billion. Total deal value was $2.3 billion in 2012 and $3.1 billion in 2013.60 The opportunity to deploy large amounts of capital through a single subsidiary in individual transactions is vivid in the case of MidAmerican (now Berkshire Hathaway Energy). The intangible value of such opportunities assumed even greater significance in Berkshire’s acquisition of Burlington Northern Santa Fe Railway, the lead story in the next chapter.
Table 9.1
Highlights of Recent Berkshire Subsidiary Acquisitions
Berkshire Subsidiary Acquired Business Year $ (millions)*
Acme Brick Jenkins Brick 2010 50
BH Media Being built by acquisition of scores of local newspapers
Clayton Homes Cavalier Homes 2009 22
Southern Energy Homes 2006 95
Fleetwood 2005 64
Karsten 2005
Oakwood Homes 2004 328
CTB Meyn Food Processing 2012
Ironwood Plastics 2010
Shore Sales of Illinois 2010
Uniqfill International B.V. 2008
B. Mannebeck Landtechnik GmbH 2008
Laake GmbH 2007
Porcon Beheer B.V. 2007
Forest River Dynamax 2011
Shasta 2010
Coachmen 2008
Rance Aluminum 2007
Fruit of the Loom Vanity Fair Brands 2007 350
Russell Corporation 2006 1,120
HomeServices Being built by acquisition of scores of local real estate brokers
ISCAR/IMC Sangdong Mining (minority interest) 2012 35
Tungaloy 2008
Justin Brands Highland Shoe Co. 2013
Lubrizol Phillips Specialty Products Inc. 2014 1,400
Chemtool 2013 70
Lipotec 2012
Active Organics 2011
Nalco’s Personal Care Business 2011
Merquinsa 2011
Dow’s TPU Business 2008 60
Marmon Group Beverage Dispenser Division of IMI (including 3Wire Group, Display Technologies, and IMI Cornelius) 2013 1,100
Tarco Steel Inc. (by Bushwick Metals) 2012
McLane Missouri Beverage Co. (joint venture) 2013
Meadowbrook Meat Co. 2012
Empire Distributors 2010
Horizon Wine & Spirits (by Empire) 2010
Berkshire AltaLink 2014 2,900
Hathaway Nevada Power & Light 2013 5,600
Energy Bishop Hill Wind 2012
Alta Wind 2012
Topaz Solar Farms 2011
American Electric Power 2009
Juniper Wind 2008
PacifiCorp 2005 5,100
Kern River Gas Transmission 2002 950
Northern Natural Gas 2000 1,900
MiTek Truss Industry Production Systems (Wizard) 2014
Benson Industries 2013
Cubic Designs 2013
Kova Solutions 2013
RKL Building Specialties (by Hohmann & Barnard) 2013