Warren Buffett's Berkshire ends deal drought with Dominion Energy bet

The agreement for Dominion Energy's natural gas pipeline and storage assets signaled to the market that Buffett is willing to pounce despite his cautious tone in May about the pandemic, an expert said

Warren Buffett’s Berkshire Hathaway, which has stayed relatively quiet during the tumult of the coronavirus pandemic, broke its silence at the end of a holiday weekend with its biggest acquisition in more than four years. The agreement for Dominion Energy’s natural gas pipeline and storage assets signaled to the market that Buffett is willing to pounce despite his cautious tone in May about the pandemic, according to David Kass, professor of finance at the University of Maryland’s Robert H Smith School of Business.

“He’s willing to make investments now, of a fairly sizable amount,” Kass said. “It’s very positive that he’s sending a signal for the right deal at the right price, $10 billion or more, ‘We’re ready to go, we’re ready to invest.’”

Buffett, who has crafted Berkshire into a conglomerate valued at $434 billion, built his reputation as an investor able to swoop in during volatile markets to strike unique and complicated deals in past crises. 

After being stymied on the acquisition front, Buffett still wasn’t striking any deals during the initial stages of the pandemic and even dumped his stakes in the major US airlines. “We are very proud to be adding such a great portfolio of natural gas assets to our already strong energy business,” Buffett, who is chief executive and chairman of Omaha, Nebraska-based Berkshire Hathaway, said.

“I’m inspired to see that, given that he’s bearish, he’s still willing to make buys where he thinks it makes sense and where it meets Berkshire’s hurdle points,” said Darren Pollock, a portfolio manager at Cheviot Value Management, which invests in Berkshire shares.

Dominion Energy gained 2.3% to $84.61 in early New York trading at 6:46 a.m. Berkshire’s Class A shares, which lost 21% this year through Thursday, haven’t yet posted early trades on Monday.

Buffett has considered its energy business one of the “lead dogs” of Berkshire’s non-insurance operations alongside its railroad. Berkshire’s purchase expands its hold in the sector, adding more infrastructure to handle natural gas to its already sprawling energy operations across states such as Nevada and Iowa. Berkshire also struck the deal at a low point in the market. Natural gas futures in the US dropped last month to their lowest point in 25 years and have recovered just slightly since then.

“This looks like confirmation that commodities like energy are undervalued,” Bill Smead, chief investment officer at Smead Capital Management, which owns Berkshire shares, said in an emailed comment. “At the bottom, assets move from weak hands to strong hands.”