NV Energy (NYSE:NVE) announced this week that MidAmerican Energy Holdings Company – a subsidiary of Warren Buffett’s Berkshire Hathaway (NYSE:BRKA)(NYSE:BRKB) — will acquire it for $23.75 per share in cash, a premium of about 23 percent over the stock’s previous closing price. The enterprise value of the deal is about $10 billion, and is expected to be completed during the first quarter of 2014.
NV Energy is an energy holding company serving approximately 1.3 million electric and natural gas customers in Nevada. Combined with MidAmerican Energy Holdings, Berkshire will own the largest U.S. utility company in the United States with 8.4 million total customer accounts and total assets of approximately $$66 billion.
The deal comes at an interesting time for utilities, and particularly for NV Energy. The company’s stock declined more than 10 percent between April 30 and May 29. At the end of April, the stock traded as high as $21.40 and had climbed more than 25 percent on the year. At the beginning of May, the company reported mixed first-quarter financial results: revenue declined 4.45 percent on the year to $584.22 million, missing the average estimate of $615.68 billion, while earnings increased 80 percent to $0.09 per share, beating the average estimate of $0.08 per share.
The stock’s performance this year to date has closely followed that of broader utilities indexes.
“By joining forces with MidAmerican, we will gain access to additional operational and financial resources as we continue to position NV Energy to support the evolving energy needs of our state, and work with public policy leaders and regulators to reshape Nevada’s energy future,” said Michael Yackira, President and CEO of NV Energy.
“This is a great fit for Berkshire Hathaway, and we are pleased to make a long-term investment in Nevada’s economy,” said Warren Buffett, chairman of Berkshire Hathaway. “Through MidAmerican, we have found in NV Energy a great company with similar values, outstanding assets, and a superb management team.”
NV Energy operates primarily in Nevada, which still has a regulated electric market. This means that the company doesn’t face considerable direct competition, but the deal will need the approval of the state-level utilities commission as well as the federal-level energy commission.
In 2006, Buffett told state regulators that buying and owning utilities companies is not a good way to get rich, but it’s a good way to stay rich. Utilities like NV Energy have demonstrated their ability to return strong returns on capital even during economic downturns, given that they are a necessity for most day-to-day activities.
All told, between PacifiCorp and MidAmerican Holdings, Berkshire owns utilities in Nevada, California, Oregon, Idaho, Utah, Wyoming, Washington, Iowa, Illinois, Nebraska, and South Dakota.