Investing in Fixed-Income Securities 153Berkshire’s holdings to over 9 percent voting interest and just over 80
percent economic interest in MidAmerican.
Since 2002, Berkshire and certain of its subsidiaries also have ac-
quired approximately $1.728 million of 11 percent nontransferable
trust preferred securities, of which $150 million were redeemed in
August 2003. An additional $300 million was invested by David Sokol,
MidAmerican’s chairman and CEO, and Walter Scott, MidAmerican’s
largest individual shareholder. It was, in fact, Scott who initially ap-
proached Buffett ; it was the f irst major deal they had worked on to-
gether in their 50 years of friendship.
The price Buffett paid for MidAmerican was toward the low end of
the scale, which according to reports was $34 to $48 per share, so he
was able to achieve a certain discount. Yet Buffett also committed him-
self and Berkshire to MidAmerican’s future growth to the extent that
they would support MidAmerican’s acquisition of pipelines up to $15
billion. As part of its growth strategy, MidAmerican, with Buffett’s
help, bought pipelines from distressed energy merchants.
One such purchase happened almost immediately. In March 2002,
Buffett bought, from Tulsa-based Williams Company, the Kern River
Gas Transmission project, which transported 850 million cubic feet of
gas per day over 935 miles. Buffett paid $960 million, including as-
sumption of debt and an additional $1 billion in capital expenses.
MidAmerican also went on to acquire Dynegy’s Northern Natural
gas pipeline later in 2002 for a bargain price of about $900 million, plus
the assumption of debt. Then, as of early January 2004, Berkshire an-
nounced it would put up about 30 percent of the costs, or $2 billion, for
a new natural gas pipeline tapping Alaskan North Slope natural gas re-
serves that would boost U.S. reserves by 7 percent. MidAmerican chair-
man Sokol said that without Buffett’s help, the investment would have
been a strain on MidAmerican.
In another but related transaction, a Berkshire subsidiary, MEHC
Investment Inc., bought $275 million of Williams’s preferred stock.
This preferred stock does not generally vote with the common stock in
the election of directors, but in this deal Berkshire Hathaway gained the
right to elect 20 percent of MidAmerican’s board as well as rights of ap-
proval over certain important transactions.
Later that summer, Buffett, along with Lehman Brothers, provided
Williams with a one-year $900 million senior loan at over 19 percent,