Buffett's MidAmerican to buy PacifiCorp

Business Times - 26 May 2005

Buffett's MidAmerican to buy PacifiCorp

PacifiCorp will be purchased from Scottish Power for US$5.1b in cash

(NEW YORK) Warren Buffett struck a deal on Tuesday to buy power company PacifiCorp from Scottish Power for US$5.1 billion in cash, gaining low-cost power generators in the western United States.

Mr Buffett said on Tuesday that energy companies were a good fit with his company, Berkshire Hathaway, because they need capital and provide steady returns.
'PacifiCorp is a business that may not fit the profile of Scottish Power, but it fits our profile,' Mr Buffett said on a conference call with reporters. 'Our favourite holding is one that is forever. Utility assets fit the bill.'

He also trumpeted an eagerness to do big deals and a willingness to look outside the US.
'There is no limit to the amount of money we would have available for the right acquisition,' Mr Buffett said during a news conference in London about the PacifiCorp deal. 'Frankly, the bigger, the better,' he said. Berkshire Hathaway has more than US$40 billion to invest at the moment, he revealed. 'If you have a big one out there, try us out.'

Berkshire Hathaway will also assume US$4.3 billion in debt in the PacifiCorp deal.
The purchase of PacifiCorp is Mr Buffett's largest since Berkshire bought the General Re reinsurance business in 1998. That acquisition has not paid off as expected. A deal in 2000 between General Re and the American International Group is a focus of investigation by government officials and regulators into transactions that made AIG's financial condition look better than it was. Mr Buffett is not a target of the investigation, but he has cooperated as a witness.

In the deal announced on Tuesday, PacifiCorp, which provides electricity to 1.6 million customers in six states in the Northwest, will become part of MidAmerican Energy Holdings, Mr Buffett's utility company, which is based in Des Moines. The purchase will create a company with US$10 billion in annual revenue.

MidAmerican already owns the Kern River pipeline, which carries natural gas to California. Energy will be 'an important industry 10, 20, 50 years from now, and Berkshire Hathaway hopes to expand its investments' in the sector, Mr Buffett said. 'We will look at energy assets around the world,' he said, and invest through MidAmerican.

MidAmerican already owns CE Electric UK in northeastern England.
'The energy field is one that I basically like,' Mr Buffett said in a phone interview later on Tuesday. 'It's not a business you can dream about, however. It's a capital-intensive business that provides decent returns. It's stable, and it's predictable.'

Scottish Power, which bought PacifiCorp in 1999 for about US$10 billion, will record a 927 million (S$2.8 billion) charge because of the sale, which is expected to close early next year.
PacifiCorp has been a disappointment to Scottish Power investors. The company, based in Glasgow, failed to increase PacifiCorp's revenue as predicted and said on Tuesday that the unit's earnings were below expectations.

Overall, Scottish Power reported pre-tax profit of 1 billion for the year ended March 31. - Bloomberg, NYT

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