The firm is investigating the following transaction on behalf of shareholders.
The firm is investigating MidAmerican Energy Holdings Co., a unit of Berkshire Hathaway Inc., agreement to buy Las Vegas utility NV Energy Inc. for $5.6 billion in cash.
MidAmerican is offering $23.75 per share, a 23% premium over NV Energy's closing price Wednesday. With debt, the deal gives NV Energy an enterprise value of $10 billion.
What do we see here?
First, Buffet doesn’t overpay for anything and is a master in finding value. Here, Buffet characterized the deal as a long-term bet on Nevada's recovering economy and an investment in NV Energy's strong management team and an interest in hard assets that he understands.
The deal also appears to champion MidAmerican and NV Energy's combined alternative energy power generation prospects. The people of Nevada recognize that alternative energy is crucial to their growth.
Second, this is a utility that trades like a stock so it is favorite for those of us who like the action, want dividends, and are interested in the quick upside when the company beats the street. This isn’t Brooklyn Union Gas.
NVE has a current annual dividend yield of 3.6% and sports a current dividend payout ratio of 50%. NVE has seen its net income increase by 54% over the last five years even though its revenue has decreased by 15%. (Regulation is a beautiful thing). NVE has increased its dividend each of the last five years, and has increased payments by an impressive 18% annualized over this same time period. NVE's low payout ratio coupled with its past commitment to increased dividend payments should lead to increasing dividend payments in the future as well.
2008 2009 2010 2011 2012
Revenue 3.53B 3.59B 3.28B 2.94B 2.98B
Net Income 208.89M 182.94M 226.98M 163.43M 321.95M
Third, on Feb. 7, 2013, NVE, announced that its board of directors t declared a cash dividend of $0.19 per share, payable on March 20, 2013 to shareholders of record on March 5, 2013. This represents a 12 percent increase compared to the most recent quarterly dividend of $0.17 per share, paid on December 19, 2012. Where are you going to get yields like this?
Fourth, don’t be impressed by the premium. The $23.75 per share in cash price represents a premium of 23%, which looks pretty attractive for NVE if you are blinded by the tape.
However, when you consider that the stock was trading as high as $21.63 less than a month ago, you can imagine that if it were not for the sharp sell off this month, this deal probably would have had a higher price tag. The utility sector has been under pressure of late In fact, at one point today the Utilities sector was down more than 10% from its 4/30 high, putting it into official “correction territory” according to certain pundits. Please recognize that the bull market in traditional equities has a counterintuitive effect on utilities at lease during this rally. The reason for this, we believe, is that yields are so weak that investors are shunning away from debt and utilities (most people think they trade like debt).
Finally, recent earnings were solid, touted meeting the year’s predictions and related that major projects were on track.
If you are a current shareholder and would like to discuss your options of exercising your rights as a shareholder, which include ensuring that the company is getting the highest possible price for the company, and that the board of directors will act in the best interest of the shareholders, please contact us.
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