stocks

Warren Buffett Finally Opens Up Berkshire's Wallet

Warren Buffett puts Berkshire Hathaway's $137 billion cash pile to use, buying some of Dominion Energy's natural gas assets for $9.7 billion.

Warren Buffett is back to rummaging through the bargain bin, striking a multi-billion deal for some energy assets.

The Oracle of Omaha has taken some heat over the past few months for only unloading stocks and not spending any of Berkshire Hathaway's (BRK.B, $178.83) record $137 billion cash pile. But on Sunday, July 5, Buffett quieted some of the criticism by announcing it would snap up Dominion Energy's (D, $82.69) natural gas transmission and storage assets in a deal valued at $9.7 billion, including the assumption of debt.

Buffett's timidity has been somewhat troubling. After all, the S&P 500 fell more than 30% from its bull-market peak at one point, and yet Buffett's only move was to raise cash.

Where was the greed when others were fearful?

"We have not done anything because we don't see anything that attractive to do," Buffett said in May, when questioned about Berkshire's lack of appetite. 

But Dominion finally caught his fancy.

A Look at the Dominion Deal

Berkshire's energy division will pay $4 billion in cash to Dominion and also assume $5.7 billion in debt, giving the deal an enterprise value of $9.7 billion. In return, Berkshire gets more than 7,700 miles of natural gas transmission lines and roughly 900 billion cubic feet worth of gas storage.

The acquisition of Dominion's assets represents Berkshire's biggest deal since it bought Precision Castparts for $37.2 billion in 2016. 

And if you're wondering, the deal does indeed look like another classic Buffett move.

The purchase comes after a June that saw natural gas futures hit lows not seen in a quarter-century. The announcement also came at the same time that Dominion and Duke Energy (DUK) said they scrapped construction on the Atlantic Coast Pipeline, citing years of delay and legal uncertainties.

The transaction also bolsters Berkshire's presence in interstate nat-gas transmission, from an 8% share currently to an estimated 18%.

Buffett has called Berkshire's energy businesses and its railroad the company's "lead dogs" outside its core insurance holdings. The Dominion assets will add millions in income to the energy division while accounting for just 7% of Berkshire's war chest.

The purchase also might be taken as a signal that we've seen the bottom in the natural gas market. 

The bottom line: This looks like a good deal for Berkshire shareholders. It's also a vote of confidence in the economy from one of the greatest long-term investors of all time.

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