Warren Buffett will be 75 in August but is still making very long-term plans.
“I still think 10 to 20 years ahead – maybe I’m being a bit optimistic,” he jokes in an interview with the Financial Times after announcing the purchase of PacifiCorp.
The deal will expand Berkshire Hathaway’s MidAmerican subsidiary, which Mr Buffett believes will grow into an energy business with attractive returns over the next “10 or 20, or 50 years”.
The most famous investor in the US can afford to take a much longer view with his Berkshire Hathaway group than most public companies. “Our favourite holding is one that is forever. Utility assets fit the bill.”
Utilities are also a means of deploying the huge excess capital generated by Berkshire Hathaway’s portfolio of businesses, particularly its large insurance operations, which offer few opportunities for new investment.
Mr Buffett has also struggled to find attractively priced acquisitions in recent years, so the group’s cash pile has swelled to $44bn (£24bn).
In contrast, Mr Buffett says the US utility sector in contrast, is entering an era of heavy capital investment, according to Mr Buffett, particularly driven by new fuels and technological change. This puts MidAmerican at a big advantage over many utility companies whose shareholders expect most of the returns to be paid out in high dividends. Mr Buffett questions whether electricity utilities are now “better suited to an investor that wants to put more capital to use”.
MidAmerican has never paid a dividend and he says the backing of Berkshire puts it in a “unique position”. He adds: “PacifiCorp is a business that may not fit the profile of Scottish Power but it fits our profile.”
MidAmerican picked a couple of acquisitions in the US in 2002 when prices fell sharply in the wake of the collapse of Enron. But it has found nothing in the last two years despite looking at potential deals in “dozens of countries”. Further purchases are likely. “Maybe there will be another one next year, maybe one five years from now,” says Mr Buffett.
The US eletricity sector has seen two big deals in the last six months. In December, Exelon bought Public Service Enterprise Group for $12.8bn and earlier this month Duke Energy agreed to pay $9bn for Cinergy.
MidAmerican has “ambitions throughout the world”, says Mr Buffett, though its presence outside the US is still modest. In the UK, it is solely in distribution with the old Northern Electric and Yorkshire Electricity businesses. It also has interests in the Philippines.
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