Warren Buffett’s Berkshire Hathaway finally pulls the trigger.
The conglomerate is spending $ 4 billion to buy Dominion Energy’s natural gas transmission and storage facilities. Including the assumption of debt, the deal amounts to almost $ 10 billion. It is Berkshire’s first major purchase since the coronavirus pandemic and the subsequent market downturn in March.
At his annual general meeting in May, Buffett announced that Berkshire had set a record $ 137 billion in cash when the financial market recovered, and that he hadn̵
“We didn’t do anything because we don’t see anything so attractive,” Buffett said at the time, suggesting that the Federal Reserve’s swift action this year resulted in companies having more access to finance in public markets than you could could during the financial crisis in 2008 and 2009.
“If we really liked what we saw, we would and it will happen someday,” Buffett said in May.
For Dominion, the move is part of a series necessary to transition to a purely regulated utility that focuses on generating clean energy from wind, sun, and natural gas. After the sale, Dominion expects 90% of its future operating income to come from utilities that power more than 7 million customers in states such as Virginia, North and South Carolina, Ohio and Utah.
At the same time, Dominion announces that it is canceling the Atlantic Coast pipeline project with Duke Energy. The $ 8 billion project was subject to increasing regulatory scrutiny and delays, which drove up forecasted costs and raised doubts about its economic feasibility.
Due to the sale and streamlined operations, Dominion warns that the company now expects 2020 operating profit of $ 3.37 to $ 3.63 per share. The previous forecast was $ 4.25 to $ 4.60 per share. The company also plans to reduce the fourth quarter dividend to 63 cents per share, down from 94 cents per share it paid in the first two quarters of the year and is expected to pay out in the third quarter.
Dominion is currently paying out 85% of its operating income, but after the transaction, the company is aiming for a 65% operating income payment, which it believes is more in line with its competitors.
For Berkshire, the move significantly increases its presence in the natural gas business. With the purchase, Berkshire Hathaway Energy will transfer 18% of total interstate natural gas transmission in the United States, up from 8% currently.
As part of the transaction, Berkshire Hathaway Energy will acquire 100% of Dominion Energy Transmission, Questar Pipeline and Carolina Gas Transmission, and 50% of Iroquois Gas Transmission System. Berkshire will also acquire 25% of Cove Point LNG, an export, import and storage facility for liquefied natural gas, one of only six LNG export terminals in the United States
Berkshire Energy will pay $ 4 billion in cash for the assets and assume $ 5.7 billion in debt. Dominion plans to use approximately $ 3 billion of after-tax proceeds to buy back its shares later this year.
The transaction is subject to regulatory approval and is expected to close in the fourth quarter of this year.