Third time’s the charm, Mr. Buffett? That’s not like you. After Sempra Energy muscled its way past Warren Buffett’s Berkshire Hathaway Inc. in the bidding for Texas utility Oncor, that makes two deals backed by the billionaire this year that may now be kaput. It’s a problem for Berkshire as its cash quickly builds. The total reached $99.7 billion in the second quarter, well on its way to surpassing $100 billion in the current period.
The longer the cash sits there, the more compelled Buffett may feel to do what he really doesn’t want to do: return money directly to Berkshire shareholders. It would be an admission of defeat by an M&A market master in the face of a deal environment he no longer recognizes — one in which parties involved in his talks dare leak them to the press and counterbidders dare emerge publicly.
Last week marked six months since Kraft Heinz Co., which is controlled by Berkshire and 3G Capital, abandoned its plan to acquire Unilever for $143 billion after the press caught wind of the negotiations and their reports threw Unilever’s team into a tizzy. It was an unusual situation for Buffett to be in, as he tends to get the deals he wants and certainly rarely — if ever — gets blindsided by leaks. If negotiations in his past transactions had ever hit bumps along the way, investors wouldn’t know it.
Buffett also rarely gets elbowed out by competing bidders. But now Oncor Electric Delivery Co., the takeover target that Berkshire’s energy division was pursuing, is slipping away. Over the weekend Sempra, a San Diego-based utility owner, made a $9.45 billion bid for the bankrupt parent of the Texas power distributor, topping Berkshire’s $9 billion offer that had been agreed to just six weeks ago. It’s a win for another billionaire, Paul Singer, whose Elliott Management Corp. had been fighting the Berkshire deal. According to Elliott, Sempra’s acquisition provides “substantially greater recoveries” to all creditors of Energy Future Holdings Corp., Oncor’s parent.
Buffett is not one to get into bidding wars, but he does need to find large, attractive takeover candidates and Oncor was a deal the market liked. Even with it, though, Berkshire’s cash is getting far too large. When I raised the idea of Berkshire needing to pay a dividend back in January, some readers thought that was outlandish. Why would the world’s most successful investor — or even his eventual successor — resort to a dividend or buybacks when he can spend the cash on high-return acquisitions that do better for Berkshire and its shareholders? They assumed Buffett could find such acquisitions.
Buffett turns 87 next week. Not many octogenarians are spending their time searching for $50 billion-plus acquisitions. But finding one last elephant would neatly tie the bow on his incredible career.