2009: How did the Constellation and Dynegy deals come about?
WARREN BUFFETT: Yeah, we’re enormously proud of MidAmerican. And we will do a lot more in utilities over time. Constellation didn’t work out. I wish it had. But we were back there — Constellation, we learned of their troubles on a Tuesday at noon. I mean, we saw it in the stock price and so on.
Dave Sokol and Greg Abel were in Baltimore that evening with a firm, all-cash bid to solve Constellation’s problems. And Constellation was likely to get downgraded within 48 hours, maybe 24 hours.
And they would’ve had posting requirements in connection with various derivative transactions that they probably would not have met. I mean, they were facing bankruptcy.
And we literally went from a phone call that Dave made to me at noon or 1 o’clock to handing them a firm bid that evening in Baltimore. And that’s one of the advantages of Berkshire. That is — I think that’s a durable competitive advantage.
I think there are very few organizations that will act in that manner and that — where you have the talent there that you feel is — as a CEO — you can back them up with that kind of money without worrying about it.
So it’s — that is a plus — for Berkshire, even though it didn’t work out in that case. We will do more in the utility business.
CHARLIE MUNGER: Well, you bought a pipeline, didn’t you, in about two hours?
WARREN BUFFETT: Yeah, we did buy a pipeline, and it’s turned out very well.
And, in that particular case, the company, Dynegy, that — this was back in 2002 or so — the company needed the money enormously. They had gotten the pipeline from Enron. It was a very complicated transaction.
But they needed the money. And we needed the Federal Trade Commission approval, the FTC approval, on the deal, as would anybody that was buying it.
And we literally wrote a letter. I wrote a letter to the commission. And I said, you know, “These guys need the money. They need it before the 30-day period is up. And let us go through with this early. And we’ll do any damn thing you tell us, subsequently.”
And Berkshire can make that kind of a transaction. We don’t ask the lawyers before we do it or anything. We just do it.
And that is an advantage. And it was an advantage to Dynegy. It got them through a period that they would’ve — I’m not sure they would’ve gotten through otherwise. So, we can move fast when the time comes.
But the — one of the reasons we — there’s a couple of reasons we move fast. A, we’ve always got the money. You know, but — and we’ve got a mental attitude toward that.
But we also know we’ve got the managers that can deliver on the properties, once we own them. And that’s a huge, huge advantage.