by Travis Johnson, Stock Gumshoe | September 18, 2008 10:27 am
I bought a little more Berkshire Hathaway today (the B-shares, I don’t yet own a private jet). I’ve been thinking of picking up Berkshire or one of the other cash rich, insurance-fueled conglomerates for some time now, largely because they are poised, if they’re careful, to pick up some tremendous bargains as the market panics.
Berkshire got the nod today in part because of their deal to buy Constellation Energy (CEG) dirt cheap as a bolt-on acquisition for their MidAmerican Energy Holdings division. Constellation had some clear credit problems, and was essentially having a run on its bank — or whatever the equivalent is for a power company, but they have valuable assets and a great business, and Warren Buffett doesn’t necessarily care what your credit is like if he wants to buy your company … if he thinks you’ve got a sound business, he can finance it just fine without debt if he chooses, and if you’re under the Berkshire umbrella you’ve got a head start on a AAA credit rating if you do need to borrow. Constellation does have a large pile of debt, but not in relation to their assets or in comparison to many other utilities — their assets include power generation and distribution facilities, a wholesale power business, and a local utliity in Baltimore. I haven’t looked at their books, but I bet Warren Buffett and David Sokol have (Sokol runs MidAmerican, and is one of several rumored successors to Buffett), and the reported price is well below their reported book value.
Constellation caught my attention earlier in the week when it started falling — I’m glad I didn’t pick up shares at $35, but it makes perfect sense that Buffett did at $26.50. Leave it to Berkshire Hathaway to buy a company for half price (CEG was at $60 last week) that fits right into a big Berkshire business segment and should thrive once its removed from the panic of public shareholders and debt owners. This fits in nicely with PacifiCorp, the utility that Berkshire bought a few years ago, also at a very reasonable price — are we going to see Berkshire become an acquisitive national utility now, a couple years after the Publi Utility Holding Act was repealed? Now that everyone’s looking at financials, leave it to Warren Buffett to find a bargain on the other side of the market. Whether or not this deal actually goes through, this seems like a good time to own shares in a company that has $40 billion in cash available right now, and a proven record of profitably buying assets when everyone else is terrified and trying to sell.
My shares today were added at about $4135, which brings my cost basis up to about $3570 per share and makes Berkshire my second largest holding.
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