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hey guys tom here from the investable time Warren Buffett has just made a new investment and it was close to a ten billion dollar deal so I want to get into some of the details of that particular investment at something that Buffett hasn't done for quite a few years now is make a new investment so first let me get into a little bit of the background with that then let's dive straight into the details of some of this new deal so first some background so for those who haven't been following Berkshire Hathaway and Warren Buffett particularly closely over the last few years basically he has been getting a lot more criticism over the last year or two for not having made any large investments recently basically Warren Buffett has been sitting there with his current holdings having all those others businesses that he wholly owns produce a lot of cash like they all has to have some of those public companies pay dividends and really just have that cash pile kind of accumulate to massive levels over time so during his last quarterly report he reported that he had a hundred and thirty seven billion dollars in cash which is more cash than Berkshire Hathaway's ever had and it's well over 25 percent of Berkshire Hathaway's market cap so a huge percentage of the portfolio in cash not from necessarily selling any investments but really from just not buying and having as current investments produce a lot of cash flow make a whole lot of money and he's just sitting there with this absolutely mountain of cash I'm ready to go for when the elephant-sized deals do come up and really Buffett hasn't made a large acquisition since his initial purchase and to Apple and that was that was a purchase that was made on the public markets it was somewhere in the thirty billion dollar range his total investment and Apple at bordom a little over five percent of the company and that particular position is worth something and the sixty billion dollar range now so over the last sort of three or four years since he's first started vine in sample that investment has performed really really well and this new deal with Dominion energy is really the first major acquisition that he's made since that first Apple investment so let's get straight into some of the detail I'm gonna be reading from a Bloomberg article here and there's a couple of interesting things about the way this particular deal is structured and one thing with the company that Buffett is buying some of these assets from that really kind of made me laugh so let's get straight into that so I'll leave a link to this article down in the description below this is coming from the New York Times I think I just hit Bloomberg before with us in New York New York Times article so the article reads Berkshire will pay four billion dollars for Dominions gas network assets including more than seventy seven hundred miles of natural gas storage and transmission pipelines and about nine hundred billion cubic feet of gas storage the Dominion purchase was mr.
Buffett's biggest and four years put in to use some of Berkshire's 137 billion dollar cash pile and it will probably quell some investor anxiety about mr. Buffett's recent drought of deal-making it follows the unexpected death of the atlantic pipeline just last month Dominion and Juke scored a victory when the Supreme Court ruled that the pipeline which would have moved natural gas from West Virginia across 600 miles to Virginia and North Carolina could be built under the Appalachian Trail overall in objections from environmental groups the energy companies said that six-year-old project faced more potential legal battles and costly delays the pipeline's cancellation may have also been a bit on democratic victories and the upcoming US elections that is almost certainly not true just as an aside here Buffett does not make it special invest on what he thinks is going to happen in the next next election here he holds companies that are going to do well regardless of who's in power now government was so ignore that but and announcing the deal with Berkshire Dominion emphasized and narrowing focus becoming a more sustainably focused utility reducing reliance on fossil fuels power companies like Dominion are moving moving toward using more renewable energy sources so they have it that's kind of the high-level view of the deal basically Warren Buffett is putting about four billion dollars to work on buying some natural gas pipelines from Dominion energy now Dominion energy as a company public company which is worth much more than the ten billion dollars of his pain and the four billion dollars of cash that he's put into work I'll put up again a screenshot of this stocking off their market cap here so that you can see that and there's a couple of interesting things about how this deal is structured so the first thing is that Warren Buffett is actually going to take on some debt to do this deal and it was kind of surprising to me that and his recent annual meeting he actually mentioned that Berkshire Hathaway had had borrowed some money and you know typically when companies get into distressed situations through crises like we've had over the last few months Buffett is usually the first one there to lend people money when they get when it gets to attractive interest rates because you know these businesses are in distress so for for buffer to actually go out and be on the other side of that deal and borrow money that's it's not a suggestion that he's in distress by any means because Berkshire is an absolute fortress but it just goes to show that interest rates are extremely low and Buffett finds you know borrowing money to be a very attractive proposition at the moment so as part of this deal you'll see a couple of different numbers so the first thing as you will see that Buffett put four billion dollars of US hundred and thirty seven billion to to work in this particular deal he's also taken on about six billion dollars of debt that he is basically taking off off Dominion energies hands so this is one of the advantages of why I like to use sort of like an enterprise value metric this is basically what path from what Buffett has done here although he's paid I was sort of essentially a four billion dollar you know purchase price on the deal he's basically paid ten billion because he's also taken on six billion of debt so he's paid sort of a ten billion dollar enterprise value and that's you know in my opinion at least the best way to kind of think about this types of acquisition now this particular business is going to fit really nicely into Berkshire Hathaway energy so Berkshire Hathaway energy is a massive subsidiary of Berkshire Hathaway it's a huge component of their business and it's run by a guy by the name of Greek Abel I'll put up a photo of Greg Abel here and Greg Abel you might actually recognize from the most recent Berkshire Hathaway shareholders meeting so here was a guy that was sitting next to Warren Buffett answering questions because Charlie Munger couldn't make it the risk just wasn't worth or what the owners going around at the time and Greg Abel has been in the position of running berkshire hathaway energy for a long period of time now and like was mentioned briefly in this article Berkshire have been doing a lot of work to move towards more sustainable energy sources so they're getting away from more traditional ways of producing electricity things like burning coal for example to more sustainable energy sources such as wind and solar especially wind in the case of butch Hathaway so there has been a lot of money invested by the parent company Berkshire to down towards its subsidiaries to to go through that transition and it's been really profitable it's an interesting business because for a lot of those electricity and utility companies basically the rates in terms of return on capital and so on are not attractive for private investors to go down their track so it is government regulated and Berkshire are allowed to actually make a reasonable return through that investment so there is some government support actually and and helping those particular investments get off the ground so it does not surprise me whatsoever that Berkshire is continuing to invest in the energy space this is a very large deal but relative to the scope of Berkshires cash bail it's going to drop them from 137 billion down to 133 billion in cash plus they're probably going to produce more than four billion and cashflow this quarter I would have thought so they're casual more than replenish itself I would say before before the next public filings and so on come out so interesting deal relatively big deal on the service offerings but you know Berkshire just an absolute Goliath at this point so it was really not going to make a huge dent on the on the future it turns for shareholders moving forward now there's just one final thing I wanted to finish on what I found kind of funny and this was a press release that actually came out of the parent company Dominion so the CEO basically came out and said you know we have been selling off some of our assets in order to reduce our our debt load and increase our equity position and that makes a whole lot of sense you know a lot of companies that sometimes get themselves and trouble do take on this approach of sort of downsizing paying off their debts a really good example of that happening in New Zealand actually at the moment is Fonterra they've been selling off some of their subsidiaries they've been selling off some of the shares they own and some public companies and so on as well to try and reduce the overall debt load and get some more cash into the business and just reduce the you know the risk of potentially massive downside for for shareholders so interesting that Dominion are taking a similar approach what absolutely cracked me up that's basically on the next you know the next sentence almost of that press release they said you know this is this is great we're going to take on this cash and reduce some debt and then in the very next sentence they basically said we expect the majority of this cash to be used for share buybacks and that basically means that you know they're taking all this cash from selling off their assets you know they were expecting to move some towards debt potentially Buffett fortunately has taken some that did away but instead of putting that cash towards paying down even more debt they're gonna go out and buy back the shares basically get rid of all that cash keep the debt just as it was and kind of carry on with life so I thought that was kind of funny it's just it just shows you know some of the some of the thinking in terms of capital allocation and so on that goes on on some of these public companies I don't know the case with this particular business whether they have some sort of compensation plan that's tied to that's tied to earnings per share or something which wouldn't seem to most share buybacks I just don't know but that seems right like a really silly stupid you know just crazy move to me so I thought I'd finish on that I found that kind of funny but nonetheless it's great to see Warren Buffett making acquisitions and Berkshire his shareholders I'm sure will be very very happy although cash can turn you into an absolute financial fortress at the end of the day cash does not make particularly high returns over the long term so it is cool to see Buffett's done to put at least some of that to work and I hope those massive market volatility and he can do a whole lot more so I hope you enjoyed the video if you did please hit like and hit subscribe you can watch them older videos over their head subscribe over there and I we'll see you in the next one Cheers
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