No. of Recommendations: 29
Berkshire has a problem. Albeit a high class problem. If it does not get the opportunity to allocate capital, it will eventually have too much cash.
Less than a month ago, Berkshire paid $3.3 billion for a 50% stake in a liquefied natural gas facility. The sub that bought it, Berkshire Hathaway Energy, began as a $2 billion acquisition in 1999. Today it is valued at around $90 billion.
The energy infrastructure space is full of midstream players that wade waist-deep into debt to build pipelines, storage facilities, export terminals, transmission networks and such. With the recent rapid rise in interest rates, some of them are now feeling stress around all that debt. This was the reported reason for Dominion's sale of the 50% interest in Cove Point, an asset arguably more valuable than the valuation at which Berkshire bought control as one of only seven LNG export terminals in the U.S.
If not now, might Berkshire get more ambitious in this space once Greg Abel, longtime CEO of BH Energy and architect of its rapid growth, is in charge? At a certain dollar level, the private equity houses generally are not a factor. You don't see them writing checks for $50 billion.
Take TC Energy, for example, a Canadian midstream player with a vast network of irreplaceable gas and liquid pipelines and multi-billion-dollar annual capital spending projects to build more. Like a lot of energy companies, it has not participated in the recent re-inflation of the equity markets. It's trading near its 52-week low at a market cap of about $36 billion. Under the current management, recent projects have been plagued by construction delays and cost overruns. Shareholders are not thrilled.
Is it possible that Berkshire under Abel would not confine itself to friendly acquisitions but make plays for parts or all of similar companies?
It's an area with a lot of healthy regulated returns on the operations side and it could absorb a lot of capital. Does anyone else think that Greg Abel's expertise in this space and growing influence in the Berkshire C-suite might make it even more aggressive allocating capital there?
