Billionaire Warren E. Buffett placed his biggest wager yet on the utility industry Tuesday when his MidAmerican Energy Holdings Co. agreed to buy Western electric-power supplier PacifiCorp for $5.1 billion in cash.
The proposed purchase would be the famed investor's largest acquisition since 1998, when his investment firm, Berkshire Hathaway Inc., bought reinsurer General Re Corp. for $22 billion. MidAmerican Energy is 80% owned by Omaha-based Berkshire.
The deal came as Buffett was looking for ways to invest Berkshire's $40-billion cash hoard, as well as opportunities to expand his growing presence in the utility sector.
"We like the business generally," Buffett said in an interview. "By definition it can't be a great business because you're regulated and the return [on investment] you're allowed is reasonable if not mouthwatering.
"But it's predictable, and it gives us a chance to deploy large amounts of capital, and that's important to us," he said.
PacifiCorp, based in Portland, Ore., provides electricity to 1.6 million customers in six Western states, including about 43,300 in such Northern California cities as Yreka, Crescent City and Mt. Shasta. It is a subsidiary of Glasgow-based Scottish Power.
The acquisition would give MidAmerican Energy, based in Des Moines, about 6.6 million customers worldwide, including 3 million in the United States, and $10 billion in annual revenue.
Berkshire acquired control of MidAmerican Energy for $3.3 billion in two transactions in 2000 and 2002, and it has made some smaller energy-related acquisitions as well. For instance, it acquired Kern River Gas Transmission Co., a pipeline system that brings natural gas to California, Utah and Nevada.
PacifiCorp has ambitious plans to upgrade and expand its system, a project that will cost about $1 billion a year over the next five years. Scottish Power balked at making the investments and agreed to sell PacifiCorp instead, PacifiCorp Chief Executive Judi Johansen said at a news conference.
"What MidAmerican brings to PacifiCorp is a very solid, stable funding base" for that spending, she said.
In the aftermath of Enron Corp.'s demise and the near-collapse of the once-hot energy trading sector, many U.S. utilities have regrouped around their core regulated business of producing and distributing power.
