Led by Warren Buffett's Berkshire Hathaway, a group of investors yesterday agreed to buy Des Moines-based MidAmerican Energy Holdings Co. for about $9 billion in cash and assumed debt, marking Buffett's first investment in the energy sector.
MidAmerican--which produces, supplies and distributes various kinds of fuel--will be delisted following the acquisition, expected around April 2000, and only its fixed-income securities will be publicly traded.
"This investment is right in our sweet spot," said Buffett, Berkshire's chairman and chief executive. "We buy good companies with outstanding management and good growth potential at a fair price, and we're willing to wait longer than some investors."
Before the deal was announced, MidAmerican shares had fallen 21 percent this year.
At $35.05 a share, the deal represents a 29 percent premium over MidAmerican's Friday closing price of $27.25. Berkshire will invest about $1.25 billion in common stock and a non-dividend-paying convertible preferred stock, acquiring a controlling 75 percent stake. Berkshire also will buy $800 million worth of nontransferable trust preferred stock and assume MidAmerican's $7 billion debt.
The other investors, who are chipping in with $300 million, include Walter Scott, former chairman of Peter Kiewit Sons' Inc. and MidAmerican's largest shareholder, and David L. Sokol, chairman and chief executive of MidAmerican.
MidAmerican has a strong presence in Britain and the midwestern U.S. retail energy market. It has more than 3.3 million consumers in the United States and Britain and has operations in the Philippines, Poland and Australia.
Buffett, whose investment firm has been hit by the erosion in the price of blue-chip stocks such as Gillette Co. and Coca-Cola Co., is seen as diversifying his investment portfolio with MidAmerican. The investment "is a move away from volatile growth stocks to a regulated industry where price fluctuations are less volatile," said Tom Burnett, founder of Merger Insight, a New York research firm.
According to MidAmerican--which in March merged with CalEnergy Co. in a $3.95 billion deal--no management changes or layoffs are planned and the company will continue to operate under its existing name.
MidAmerican shares rose $6.12 1/2, or 22 percent, to close at $33.37 1/2. Berkshire class A shares, which have fallen sharply from a high of $80,300 in March, closed yesterday at $55,500, up $1,000, or nearly 1.8 percent.
CAPTION: Warren Buffett said the acquisition is "right in our sweet spot."