Warren Buffett's Berkshire buys Dominion Energy natural gas assets in $10 billion deal

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Warren Buffett‘s Berkshire Hathaway is finally pulling the trigger.

The conglomerate is spending $4 billion to buy the natural gas transmission and storage assets of Dominion Energy. Including the assumption of debt, the deal totals almost $10 billion. It’s the first major purchase from Berkshire since the coronavirus pandemic and subsequent market collapse in March.

At his annual shareholder meeting in May, Buffett revealed that Berkshire had built up a record $137 billion cash hoard as the financial market tanked, and that he hadn’t seen many opportunistic deals, despite the stock market’s deep swoon.

“We have not done anything because we don’t see anything that attractive to do,” Buffett said at the time, suggesting that the quick actions taken by the Federal Reserve this year meant companies could get more access to financing in the public markets than they could during the financial crisis in 2008 and 2009.

“If we really liked what we were seeing, we would do it, and that will happen someday,” Buffett said in May.

For Dominion, the move is one of a series it is taking to transition to a pure-play regulated utility company that focuses on clean energy production from wind, solar and natural gas. Following the sale, Dominion expects that 90% of its future operating earnings will come from its utility companies that provide energy to more than 7 million customers in states like Virginia, North and South Carolina, Ohio and Utah.

Dominion is simultaneously announcing that it is cancelling the the Atlantic Coast Pipeline project with Duke Energy. The $8 billion project has faced increasing regulatory scrutiny and delays that have ballooned projected costs and raised doubts about its economic feasibility.

As a result of the sale and its streamlined operations, Dominion is warning that it now expects its operating earnings for 2020 to be $3.37 to $3.63 a share. Its previous guidance was for $4.25 to $4.60 a share. The company is also planning to cut its dividend in the fourth quarter to 63 cents a share, from the 94 cents a share that it paid out in each of the first two quarters of the year and that it anticipates paying out for the third quarter.

Currently, Dominion pays out 85% of its operating earnings, but post transaction the company is targeting an operating earnings payout of 65%, which it says is more in line with its peers.

For Berkshire, the move greatly increases its footprint in the natural gas business. With the purchase, Berkshire Hathaway Energy will carry 18% of all interstate natural gas transmission in the United States, up from 8% currently.

Under the terms 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 just six LNG export terminals in the U.S. 

Berkshire Energy will pay $4 billion in cash for the assets, and assume $5.7 billion in debt. Dominion plans to use about $3 billion of the after-tax proceeds to buy back its shares later this year.

The deal is subject to regulatory approval and is expected to close in the fourth quarter of this year.

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