After adding its $5.59 billion acquisition of Las Vegas-based NV Energy Inc. announced late Wednesday, MidAmerican Energy Holdings Co., will be a $66 billion combination natural gas and electric utility company serving more than 8 million customers globally, along with a growing renewable energy portfolio, international grid and generation businesses and two major interstate natural gas pipelines.
The straight cash deal comes at a time when NV Energy is engaged in a high-profile public policy battle over its transformation from reliance on a lot of coal-based electricity supplies to one focused on renewables and natural gas-fired generation. The current debate is ongoing in the Nevada legislature (see Daily GPI, May 24) and among some of the its largest customers in the gambling and hospitality industry.
In recent years when MidAmerican, the energy division of Warren Buffett’s Berkshire Hathaway empire, has acquired major energy concerns (such as Portland, OR-based PacifiCorp and Salt Lake City-based Kern River Pipeline and Omaha-based Northern Natural Gas), there have been few dramatic changes in terms of leadership or the direction at the acquired companies.
PacifiCorp has continued to serve parts of California, Oregon and Washington state with its Pacific Power unit, and Idaho, Utah and Wyoming with its Rocky Mountain Power operations. Kern River continues to operate an interstate gas transmission system from the oil/gas fields of southwest Wyoming to California’s central valley. Northern Natural serves eight Midwestern states.
MidAmerican CEO Greg Abel has overseen all of the acquisitions since Berkshire Hathaway entered the utility business in 2000 with the purchase of Des Moines, IA-based MidAmerican Energy Co., followed by acquisitions of Kern River and Dynegy’s Northern Natural Gas two years later (see Daily GPI, July 30, 2002).
NV Energy will operate under its current name as a separate corporate subsidiary of MidAmerican, and will continue to be based in Las Vegas, following the same pattern of MidAmerican in its other acquisitions. The conglomerate has a reputation for keeping a “hands-off from headquarters” policy. Buffett has been quoted as saying he buys good companies with good people and lets them maintain their independent operations.
Once separate northern and southern Nevada utilities under a struggling holding company, Sierra Pacific Resources, that was headquartered in Reno, NV Energy emerged in the past decade under Michael Yackira, who joined the holding company as executive vice president for strategy and policy, after being a senior executive with FPL Energy in Florida and in the telecommunications business.
Yackira, 61, was named CEO in 2007, and he was mentioned by MidAmerican’s Abel as one of the reasons the Buffett financial empire was attracted to NV Energy.
“One area where MidAmerican will add immediate value is in our work with public policy leaders and regulators to help reshape Nevada’s energy future for the benefit of customers and the state,” Yackira said in a website-posted “letter” to the 2.4 million citizens the utility serves in Nevada.
Yackira said the MidAmerican expertise in renewable energy is a good match for Nevada’s renewable resources as his utility seeks to develop new zero- and low-carbon generation options, including more natural gas plants under its “NVision” proposal. NV Energy currently operates 10 generation plants in Nevada, seven of which are gas-fired.
Not surprisingly Buffett lauded the acquisition, calling it “a long-term investment in Nevada’s economy,” which is slowly beginning to turn around. Buffett said NV Energy had “similar values, outstanding assets and a superb management team.” An analyst with Motley Fool agreed with Buffett’s characterization of NV Energy being “a great fit” for MidAmerican, noting “it is hard to argue that Buffett is overpaying for his latest prize.”
The deal is expected to be completed early next years, pending approvals from shareholders, state regulators, the Federal Energy Regulatory Commission, and the Department of Justice. No conference call with financial analysts is scheduled at this time to discuss the straight cash deal that involves no financing.
The two major credit rating agencies, Moody’s Investors Service and Standard & Poor’s Ratings Services (S&P) looked at the acquisition positively. Moody’s said there would be no impact on MidAmerican Energy’s ratings, which are generally higher than NV Energy, and S&P placed the NV Energy ratings on “CreditWatch with positive implications.”
“NV Energy’s service territories are logical extensions of those in adjacent states owned by MidAmerican’s PacifiCorp subsidiary,” Moody’s said. S&P said that NV Energy management was what it deemed “credit supportive” due to its recent efforts in “improving regulatory relationships and key credit measures.”
Early reactions from the investment community and consumer sector were mixed, as reported locally in the Las Vegas Review-Journal. All were impressed, however, that an iconic investor like Buffett would choose a Nevada-based company.
“Anytime we get someone like Warren Buffett to acquire a Nevada company and not get rid of management, it raises the level of perceived sophistication that there are well-managed companies here,” said investment brokerage managing director Robert Lind, as quoted by the R-J news report. “This will shine a flashlight on Nevada for sure.”
A long-standing critic of NV Energy, Eric Witkoski, the state consumer advocate who represents residential ratepayers in utility rate cases, said he sees room for improvement by utility management, and is hoping that MidAmerican Energy can accelerate the changes needed.
In talking to local news media, Yackira said that after NV Energy is a unit of MidAmerican, dividends will stay local and be reinvested in the company. He also held out the possibility that there will be more capital available for NV Energy’s future projects.
On the negative side, an analyst from the Financial Times‘ longstanding daily financial commentary, “Lex,” suggested that NV Energy shareholders should hold out for a higher price, reasoning that in other Berkshire Hathaway acquisitions, Buffett has paid a more handsome price, and in one case — Heinz — exceeded the company’s all-time high stock price.
“Buffett says ‘be greedy when everyone else is fearful,'” said the analyst, noting it is therefore no surprise he went after NV Energy in a lean mergers/acquisition market. “But when looking at the purchase price, investors in NV Energy must wonder why its management did not bargain harder to match Mr. Buffett’s avarice.”
About 25 large institutional investors hold 60% of NV Energy’s shares; the rest are held by small investors. They all get the 23% premium, or $23.75/share of common stock, in the purchase offer by MidAmerican Energy. The announcement just before the New York Stock Exchange closed Wednesday, caused NV Energy’s shares to shoot up $4.45, or 23.1%, closing at $23.73.
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