Warren Buffett MidAmerican Energy Investment. Why Warren Buffett invested in MidAmerican Energy. Buffett acquired 76% of MidAmerican Energy for $2 billion in 1999. MidAmerican Energy is a utility company based in Iowa.
Investments such as MidAmerican Energy are examples of investments in companies that generate stable but not spectacular returns. They have high capital expenditure requirements in order to continue to generate returns, but that creates barriers to entry that deters competition and makes it difficult for others to share in the returns.
Warren Buffett Investment in MidAmerican Energy
Buffett liked this investment for several reasons:
First, it was a strategic investment with good growth potential. Buying MidAmerican Energy gave him a toehold into the utility industry in its early stages of deregulation, and could give him an early-mover’s advantage in establishing market dominance.
Second, it allowed him to deploy large amounts of capital. Buffett speaks of investments in utilities as investments that do not necessarily generate the highest returns on invested capital, but that allow him to put large amounts of capital to use at fair rates of return that beat the zero return from sitting on piles of cash.
Third, it had outstanding management. Buffett very much admired the managers for the company and said, “If I only had two draft picks out of American business, Walter Scott and David Sokol are the ones I would choose for this industry”.