By Nicole Friedman
Warren Buffett's Berkshire Hathaway Inc. is under pressure to do
something it usually doesn't do: raise its bid.
For decades, Mr. Buffett has included in his company's annual
report a list of criteria for companies that might want to sell
businesses to Berkshire. Berkshire is looking for large companies
with little debt, the list says -- and it isn't interested in
bidding wars or hostile takeovers.
Berkshire's subsidiary Berkshire Hathaway Energy struck a deal
last week to buy bankrupt Energy Future Holdings Corp., including
Texas electricity-transmission business Oncor, for $9 billion in
cash.
Paul Singer's Elliott Management Corp., a major Energy Future
creditor, said Berkshire's bid doesn't value Oncor highly enough
and that it is working on a rival offer.
"We don't participate in auctions," Mr. Buffett wrote in the
latest annual report. "A line from a country song expresses our
feeling about new ventures, turnarounds, or auction-like sales:
'When the phone don't ring, you'll know it's me.'"
If the Oncor deal doesn't go through, Energy Future would pay
Berkshire Hathaway Energy a $270 million fee, according to a
filing. The fee would have to be approved by the bankruptcy
court.
"It is quite likely that the Berkshire transaction will not
close, given the lack of support from the debtors' creditors," a
lawyer for Elliott wrote in a Tuesday letter that was publicly
released by the hedge fund.
The potential Berkshire deal would need permission from a
bankruptcy court and from Texas regulators. Regulators already have
indicated they would support Berkshire as a buyer.
Berkshire Hathaway Energy did not respond to a request for
comment.
Berkshire watchers said the company is unlikely to raise its
initial bid.
"His trump card is his willingness to walk away," said David
Rolfe, chief investment officer at Wedgewood Partners, which
manages about $6 billion and holds Berkshire shares, referring to
Mr. Buffett. "He does not have a history of bidding-type
competitions, and he typically has played a pretty strong
hand."
Mr. Buffett has long been known for quickly negotiating deals
and sticking with his initial price offer.
"His playbook is not to negotiate," said Robert Miles, who has
written books on Berkshire. "Buffett would take the $270 million
and move on to the next deal, which is what they did with
Constellation."
Berkshire's energy unit reached a deal in 2008 to buy
Constellation Energy Group Inc. but withdrew the offer after
state-controlled Electricite de France SA agreed to buy a stake in
Constellation. Berkshire received a $175 million breakup fee.
To be sure, many potential Berkshire deals that fall through
never become public. In 2012, Mr. Buffett told shareholders that
Berkshire almost spent $22 billion buying a company but couldn't
reach an agreement. He didn't name the potential target.
A recent withdrawal occurred earlier this year when Kraft Heinz
Co., which is partly owned by Berkshire and Brazilian
private-equity firm 3G Capital, backed away from a $143 billion
approach to take over Unilever PLC in February after Unilever
declined. Mr. Buffett revealed at his company's May annual meeting
that Berkshire would have invested $15 billion if the deal were
reached.
"If it's unwelcome, there is no offer," Mr. Buffett told CNBC in
February.
Mr. Buffett famously participated in one hostile deal decades
ago -- the takeover of Berkshire itself. Mr. Buffett bought shares
in Berkshire, which was a New England textile company, starting in
1962. In 1965, he appeared at a board meeting to take control of
the company formally and replace the management.
In retrospect, he has said, the deal was a mistake. "I found
myself...invested in a terrible business about which I knew very
little, " he wrote in 2014.
Mr. Buffett did raise the offer price in 1999 when he bought a
majority stake in MidAmerican Energy Holdings Co., now called
Berkshire Hathaway Energy. But he made the switch before the deal
was announced, as he explained in his 2007 letter to
shareholders.
Mr. Buffett originally offered $35 a share for MidAmerican, but
after pressure from investment bankers, he raised it to $35.05, he
said in the letter. "With that, I explained, they could tell their
client they had wrung the last nickel out of me," he wrote. "At the
time, it hurt."
But given MidAmerican's growth since then, he said in the same
letter, "I'm glad I wilted and offered the extra nickel."
Write to Nicole Friedman at nicole.friedman@wsj.com
(END) Dow Jones Newswires
July 11, 2017 18:38 ET (22:38 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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