Potential complications and other issues
This deal is not expected to face significant regulatory hurdles. However, it could be held up by some brewing legal investigations that could potentially produce shareholder-rights lawsuits. These investigations center around NV’s purported failure to solicit competitive bids, and they insinuate that the utility is worth substantially more than Mid-American’s offer price. At this point, nothing indicates that these investigations will stop the deal in its tracks. However, they could contribute to delays or upward revisions in Mid-American’s offer.
Effects on competitors
Assuming that it goes through as planned, this deal will have immediate and significant impacts on both companies’ competitors. Buffett has made no secret of his desire to invest in sustainable energy operations in sparsely populated parts of the country, and the acquisition of a major Nevada utility will provide tremendous momentum for the solar, wind and geothermal energy projects that he has long favored. Since Mid-American already owns a number of solar farms in the Southwest and has invested heavily in other renewable projects, it has a major advantage over competitors like Southwest Gas.
With real estate prices in recession-wracked Nevada at multi-year lows, it seems likely that the combined company will invest heavily in rural land that can support large-scale solar and wind farms. Likewise, the unique geology of the Great Basin makes Nevada a prime spot for geothermal development. If this merger is successful, it could create a major force in the renewable energy business.
In sum, this deal’s small arbitrage premium is not its main selling point. Rather, the unique asset profiles of the two merging entities have the potential to reshape the utility business in the American Southwest. In the process, the combined firm could test the limits of large-scale renewable energy development and create a model for future endeavors in the sector. Investors who have relatively long time horizons are liable to be handsomely rewarded for their faith in this bold merger.
Mike Thiessen has no position in any stocks mentioned. The Motley Fool recommends Berkshire Hathaway Inc. (NYSE:BRK.B). The Motley Fool owns shares of Berkshire Hathaway. Mike is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Can Investors Profit From Berkshire’s Purchase? originally appeared on Fool.com and is written by Mike Thiessen.
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