• Market Crumbs

Buffett Finally Makes A Deal


Image via Mike Benna on Unsplash

Just a few days ago we wrote about the global decline in mergers and acquisitions in the second quarter.


According to Refinitiv, global M&A totaled $485.3 billion in the second quarter, a decline of 55% from the same period a year earlier. The total marks the lowest dollar amount for M&A activity since the third quarter of 2009. Even worse, the 8,272 deals in the second quarter marked the lowest quarterly deal volume since the third quarter of 2004.


Warren Buffettwho just a few months ago said "we don’t see anything that attractive to do," finally pulled the trigger over the weekend, giving the third quarter its first major deal.


Berkshire Hathaway Energy announced it will acquire the natural gas transmission and storage assets of Dominion Energy for $9.7 billion. The deal sees Berkshire paying $4 billion in cash and assuming $5.7 billion in debt.


Although the $4 billion outlay barely puts a dent in Berkshire's $137 billion cash pile, it marks Buffett's first major acquisition since Berkshire acquired Precision Castparts for $37 billion in 2016.


The deal also means Berkshire Hathaway Energy will now carry 18% of all interstate natural gas transmission in the U.S., up from the 8% it currently carries. The assets in the deal amount to more than 7,700 miles of natural gas transmission lines as well as 900 billion cubic feet of gas storage.


"We are very proud to be adding such a great portfolio of natural gas assets to our already strong energy business," Buffett said in a statement regarding the deal.


Berkshire Hathaway Energy, which is 90% owned by Berkshire Hathaway, includes utilities such as MidAmerican Energy, NV Energy and PacifiCorp, as well as natural gas pipelines and wind power assets. Berkshire Hathaway Energy accounted for 12% of Berkshire’s operating profit in 2019 and is led by Greg Abel, who also serves on Berkshire's board of directors and is widely seen as a potential successor to Buffett.


Interestingly, Buffett appears to have stuck to his mantra of being "fearful when others are greedy, and greedy when others are fearful." With technology stocks getting all of the attention and trading at record highs, Buffett chose to strike a deal in the beaten down energy sector.


The energy sector is down more than 35% so far in 2020, far worse than the second-worst performing sectorfinancials, which has dropped more than 24% so far this year. For comparison, the technology sector is up more than 15% year-to-date.

With criticism of Buffett seemingly coming from every direction, it will be worth watching how this deal ages. Buffett chose to invest in the worst-performing sector in lieu of "sexy" sectors that have fared much better recently.


Finally, for those who still insist "he’s washed up," Berkshire's largest common stock holding as of the end of 2019 is Apple, which accounts for nearly 30% of Berkshire's common stock investments and has gained well over 100%.


"More than just a place to take stock of your portfolio." - TechCrunch Public is an investing app that puts a social layer on the stock market. It includes all of the things you would expect from a modern brokerage, with a little something extra: the ability to talk about why you believe in certain companies and share ideas with your friends and other investors.


One of my favorite features? Chats where you can embed dynamic charts (no more sharing screenshots) and build groups around specific stocks or trends.


Use this link to download the app and follow my long-term portfolio (@hipstertrader) and start with a free slice of stock. 🍕


*Free stock offer valid for U.S. residents 18+. Subject to account approval.


Leftover Crumbs

  • The unemployment rate is still high. Nonfarm payrolls jumped by 4.8 million in June with the unemployment rate falling to 11.1%, according to the U.S. Department of Labor. June's report exceeded expectations of 2.9 million jobs gained and an unemployment rate of 12.4%. The 4.8 million jobs added during June is a new single-month record. Despite the enthusiasm about the better-than-expected report, the unemployment rate is still far higher than the half-century low unemployment rate of 3.5% in February before the coronavirus outbreak began.

  • Boeing communications chief resigns. Boeing's communications chief Niel Golightly has resigned after an article he wrote in 1987 arguing women shouldn't serve in combat prompted a complaint from an employee. "My article was a 29-year-old Cold War navy pilot’s misguided contribution to a debate that was live at the time," Golightly said. "My argument was embarrassingly wrong and offensive. The article is not a reflection of who I am; but nonetheless I have decided that in the interest of the company I will step down."

  • Amazon delays Prime Day again. After delaying its annual Prime Day in May from July to September, Amazon has delayed it once again and now hopes to hold the event in October. Amazon told sellers to use the week of October 5 as a "placeholder date" but said "exact Prime Day dates have not been announced." "A definitive date will be announced as we get closer to the event," Amazon's email to sellers read. "We are looking forward to seeing submissions that offer the most delight to customers during one of the biggest shopping days of the year, Prime Day!"

  • Boeing to stop producing 747 jumbo jet. Boeing placed the final parts orders for its 747 jumbo jet program last year, signaling the end of the airplane that had its first flight in 1969. The program has seen demand fall in recent years, as the last order for a passenger version was in 2017 for use as Air Force One. "At a build rate of 0.5 airplanes per month, the 747-8 program has more than two years of production ahead of it in order to fulfill our current customer commitments," Boeing said. "We will continue to make the right decisions to keep the production line healthy and meet customer needs."

  • Nike pulls Redskins merchandise. Nike has pulled Washington Redskins merchandise from its website after receiving a letter from investors asking the company to sever ties with the NFL team if they do not change their name. The NFL section of Nike's website now has every team in the league listed except for Washington. "We have been talking to the NFL and sharing our concerns regarding the name of the Washington team. We are pleased to see the team taking a first step towards change," Nike said.