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Berkshire Hathaway Subsidiary to Acquire Oncor Electric

Berkshire Hathaway Inc.’s BRK.B division Berkshire Hathaway Energy will buy Oncor Electric Delivery Company LLC, per media reports. The transaction values Oncor Electric’s equity at $11.25 billion. The acquirer also intends to acquire Energy Future Holdings Corp, the parent of Oncor Electric for $9 billion in cash. Awaiting approvals, the transactions are expected to culminate in the fourth quarter of this year.

Texas-based Oncor Electric is an electric utility giant, having generated $935 million in operating revenues and $73 million in net income in the quarter ended Mar 31, 2017. Per Bob Shapard, CEO, Oncor Electric, “We will gain access to additional operational and financial resources as we continue to position Oncor to support the evolving energy needs of our state.”

Interestingly, Berkshire Hathaway had invested in Energy Future Holdings in 2007 through corporate bonds worth $2 billion. However, it shrugged off the same in 2017 after incurring a massive $873 million loss. Energy Future Holdings boasts Texas’s largest electricity-transmission operator.

Notably, NextEra Energy Inc. NEE and Hunt Consolidated Inc. also desired to take over Oncor Electric but Texas regulators rejected their pleas, citing that the deal will not be in favor of public interest. It is now Berkshire Hathaway Energy that seeks an approval for the acquisition.

Berkshire Hathaway’s economically sensitive non-insurance businesses – utilities and energy plus manufacturing, service and retail – are performing favorably after suffering a substantial earnings decline in recent past due to economic weakness. However, there has been a turnaround of late.

Warren Buffett, who spearheads Berkshire Hathaway, has been eyeing strategic investments in utility sector and owns utilities across the nation. In 2013, the company had acquired electricity provider NV Energy Inc.

Demand for utilities is expected to be high as economic recovery gains pace and drives the earnings growth. This acquisition thus will be a perfect fit and help the company capitalize on the emerging opportunities.

Shares of Berkshire Hathaway have gained 4.43% quarter to date, underperforming the Zacks categorized Property and Casualty Insurance  industry’s 4.77% increase. The company has also not witnessed any earnings momentum over the last 30 days. Nonetheless, with strong fundamentals and a continued focus to create a tremendous value for the shareholders should drive the shares higher.

Berkshire Hathaway presently caries a Zacks Rank #3 (Hold).

Acquisitions Ramping Up Growth Profile

Acquisitions are a well-accepted growth strategy among insurers. AXIS Capital Holdings Limited AXS will buy Novae Group plc for $605 million in cash to ramp up its Lloyd presence, while The Hanover Insurance Group, Inc. THG has announced that its international specialty insurance group Chaucer has bought SLE Holdings to enhance its specialty capabilities.

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