Warren Buffett’s Berkshire Hathaway has acquired the remaining 8% stake in Berkshire Hathaway Energy (BHE) for $2.37 billion in cash, $600 million in debt, and a significant amount of Berkshire Class B shares. The deal gives Berkshire full control of BHE, a utility giant in which the conglomerate has owned a majority stake since 1999. Analysts and investors believe the deal price marked a drop in valuation for BHE, whose businesses have experienced a tumultuous period with liabilities related to wildfires.
Buffett expressed concerns about the future of the business in his 2023 annual letter. “Buffett didn’t pay a premium for BHE, which implies that he is still concerned about the future of the business,” said Bill Stone, chief investment officer at Glenview Trust Company and a Berkshire shareholder. Berkshire Vice Chairman Greg Abel, Buffett’s designated successor, sold his 1% stake in BHE for $870 million at a much higher valuation just two years ago.
Abel is currently the chairman of BHE.
Buffett’s concerns about BHE valuation
Buffett said the regulatory climate in a few states has raised the specter of zero profitability or even bankruptcy, making what was once one of the most stable industries extremely unpredictable.
“It will be many years until we know the final tally from BHE’s forest-fire losses and can intelligently make decisions about the desirability of future investments in vulnerable western states,” he wrote. “I did not anticipate or even consider the adverse developments in regulatory returns and, along with Berkshire’s two partners at BHE, I made a costly mistake in not doing so.”
The utility arm has been a weak spot for the conglomerate, which has otherwise enjoyed a few outstanding years. Berkshire’s 2024 rally has propelled it to a $1 trillion market cap, the first non-tech company in the U.S. to reach such a milestone.
“BHE has been under pressure,” said Cathy Seifert, Berkshire analyst at CFRA Research. “First half 2024 revenues at BHE were off fractionally and pretax profits fell more than 10%.”
Despite the challenges faced by BHE, Berkshire Hathaway’s latest investment reaffirms the company’s dedication to supporting and advancing renewable energy initiatives. The move is expected to boost confidence in the sector, encouraging other investors to follow suit.
