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Berkshire Buys Buffett Successor’s Stake in Prized Utility Unit

 

Berkshire Hathaway bought a 1% stake held by Vice Chairman Greg Abel in the company’s big electric utility business for $870 million in cash, highlighting the value of that key division.

The June purchase was disclosed Saturday morning in Berkshire’s 10-Q regulatory filing for the second quarter.

Abel is the chairman of Berkshire Hathaway Energy, a diversified utility with operations in the U.S. and U.K. and one of the largest owners of renewable power in the country.

Abel, head of the conglomerate’s non-insurance operations, is the likely successor to CEO Warren Buffett, who turns 92 later in August. Abel had been CEO of Berkshire Hathaway Energy before taking on broader responsibilities at the parent company in 2018.

Before the stake purchase, Berkshire Hathaway (ticker: BRK/A, BRK/B) held 91% of BHE. The estate of Walter Scott, a Berkshire director who died last year, owned about 8%. The Berkshire purchase of the Abel stake in BHE implies a value of about $87 billion for the business, up from about $50 billion in early 2020, when Berkshire bought some BHE stock from Scott.

Buffett has called BHE one of the most valuable and important businesses within Berkshire. The unit is spending heavily on renewable power and transmission lines in the U.S.

The Abel stake came up at Berkshire’s annual meeting in April, when a shareholder asked Buffett and Vice Chairman Charlie Munger whether Abel’s interests were misaligned since he held a valuable interest in a Berkshire unit.

Buffett and Munger dismissed the issue, saying that Abel was totally in sync with Berkshire. Buffett noted it would be easier to do a deal with Abel while Buffett is alive, since it would be a simpler transaction and likely not involve lawyers and investment bankers. Buffett has great autonomy as CEO after 57 years at the helm to make investments and do deals.

At the meeting, Buffett said the board’s attitude is, “‘Well, Warren thinks the deal is okay, it must be okay,’ which is true. So I could make a deal with anybody, and it doesn’t get all messed up with process.”

It’s a little surprising that the Abel deal was done for cash and not Berkshire stock, which presumably would have been a more tax-efficient transaction for Abel. Buffett hates to issue Berkshire stock, viewing it as precious and not wanting to dilute holders. Nearly all Berkshire acquisitions are done in cash.

Berkshire holders will be interested to see if Abel buys a chunk of Berkshire stock with the proceeds. Abel owns relatively little Berkshire stock, considering he has been paid about $75 million in the past four years.

Abel owns about $700,000 in Berkshire class B shares, according to the latest proxy, and hasn’t bought any stock in the past four years. He is trustee for a trust holding five class A shares, but disclaims beneficial ownership of that stock.

Berkshire doesn’t issue stock to its executives as part of their compensation; Buffett believes in paying them in cash. If the executives want to own Berkshire, they have to buy it in the open market. The same is true for the board of directors.

 

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