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By Greggory Warren, CFA | 08-22-2017 11:00 AM

Failed Oncor Deal Underscores Berkshire's Discipline

Warren Buffett’s unwillingness to overpay for Oncor is a sign the firm is sticking to its values and not that it's lost the touch to complete deals.

Gregg Warren: There's been plenty of headlines this week about how Berkshire Hathaway and Warren Buffett have "lost it" given their failed attempt to buy Oncor Electric Delivery. We think that's far from the case. The company stepped in to buy the business in a bankruptcy situation back in early July. They never really gained the full support of the debtholders, which actively worked against them in the weeks leading up to the approval from the bankruptcy court, so it was no surprise for us also to see another bidder step in last minute and actually pick up the assets at a much higher price than what Berkshire was willing to pay.

For anybody who knows Warren Buffett and has studied him over the years, he likes to put a price out there and he sticks by it. He doesn't engage in bidding wars. He doesn't do auctions. I think there's a value there, a discipline there, that's really important for that company to have. At times, you'll end up losing out on good deals, like this one here with Oncor. At the end of the day, it's $9 billion. The company still has about $70 billion in dry powder that it can put to work. We expect them to continue to look for new deals. 

From a valuation perspective, Berkshire shares right now are about fairly valued. We'd recommend shareholders wait a little bit for a better margin of safety to step into the name, but it's a very high-quality, good long-term holding for long-term investors.

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