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Failed Oncor Deal Underscores Berkshire's Discipline

Failed Oncor Deal Underscores Berkshire's Discipline

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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Greggory Warren

Strategist
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Greggory Warren, CFA, is a strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers the traditional U.S.-and Canadian-based asset managers, as well as Berkshire Hathaway.

Before assuming his current role in 2017, Warren covered the financial-services sector as a senior analyst since late 2008. Prior to that time, he covered non-alcoholic beverage manufacturers and distributors, packaged food firms, food service distributors, and tobacco companies. Before joining Morningstar in 2005, Warren worked as a buy-side equity analyst for more than seven years, covering consumer staples and consumer cyclicals.

Warren holds a bachelor's degree in accounting and English from Augustana College. He also holds the Chartered Financial Analyst® designation and is a member of the CFA Society of Chicago. During 2014-19, Warren was selected to participate on the analyst panel at Berkshire Hathaway’s annual meeting, asking questions directly of Warren Buffett and Charlie Munger. The analyst panel was disbanded ahead of Berkshire’s 2020 annual meeting. Warren also ranked second in the investment services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey in 2013, the last year the survey was conducted.

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