Warren Buffett Finally Makes a Deal. Cue the Fireworks?

(Bloomberg Opinion) -- Warren Buffett finally made a deal, but those fireworks you heard weren't for him. 

As the U.S. closed out the Fourth of July holiday weekend, Berkshire Hathaway Inc. said that it's acquiring nearly $10 billion of natural-gas assets and associated debt from Dominion Energy Inc. It may not be the awe-inspiring mega-purchase that his followers have patiently awaited. Still, there's much that can be gleaned from it about Buffett's frame of mind as the nation enters month five of a pandemic that's otherwise kept the famed investor on the sidelines. 

This is Berkshire's biggest acquisition since 2015, yet it's small by Berkshire standards — a relatively low-risk deal in the midst of a recession that's set to change the outlook for some industries for good. Even though Buffett recently signaled little appetite to make any big bets so long as the end of Covid-19 remains entirely unknown, energy is one area where he's been poised to make smaller, opportunistic purchases. During Berkshire's unusually somber shareholder meeting in May, he cited the energy division, along with the BNSF railroad and insurance unit, as parts of his conglomerate that were less affected by the virus. “These businesses will produce cash even though their earnings decline somewhat,” he said. In his annual letter in February, the billionaire wrote of wanting to invest more of the energy unit's retained earnings to take on large utility projects. 

The Dominion deal hands Berkshire more than 7,700 miles of gas pipelines and 900 billion cubic feet of gas storage. And it comes as Dominion and Duke Energy Corp. pull out of plans for a controversial pipeline project along the U.S. East Coast; other projects like it have been scrapped as well, and pipeline stocks have taken a beating. That confluence of factors created a rare chance in this environment for Buffett to get a deal at a price he likes in an industry he's comfortable with — and at a time when he and seemingly everyone else is scared to do much else. It also happens to be an industry that Buffett's successor-in-waiting, Greg Abel, knows well as the current head of Berkshire Hathaway Energy.

What stood out as noteworthy in Berkshire's deal announcement was that the first quote was from Buffett, not Abel. This says that Buffett, even as he is set to turn 90 years old next month, is still calling the shots and wants that known. It's also a reminder that Berkshire's history of striking sweetheart deals with favorable terms is very much because of Buffett's celebrity and acclaim — there's something to be said for selling your company to the Warren Buffett. That leaves the question: Will Abel be awarded the same preferential M&A treatment when Buffett's gone? If not, what's he to do with Berkshire's more than $100 billion of cash that not even Buffett has been able to spend?

With 2020 now marked by economic shutdowns, virus fears and a host of canceled trips, weddings and graduations, it hasn't been a good year for anyone, not even the world's sixth-richest man (he was fourth-richest before the crisis). Ideally, Buffett would be making a splash with one more giant deal right about now, and something more fascinating to the average investor than a bunch of underground pipes at that. (Costco Wholesale Corp. is one such example I speculated on recently.)

Buffett may not seem much older than he did a year ago — he's certainly just as sharp — but turning 90 is symbolic as a final chapter for the Oracle. He won't want the last footnote of his legacy to be an unmemorable purchase of gas assets, even if it is a fine transaction. Then again, Covid-19 isn't leaving him much choice. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tara Lachapelle is a Bloomberg Opinion columnist covering the business of entertainment and telecommunications, as well as broader deals. She previously wrote an M&A column for Bloomberg News.

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