Is Warren Buffett’s firm about to buy this FTSE 100 company?

Warren Buffett’s Berkshire Hathaway (NYSE:BRK.B) doesn’t often make UK acquisitions. But it’s currently being linked with a FTSE 100 name.

It’s not just the usual speculation about stocks trading at cheap prices. There’s a much deeper reason why a deal could be in the pipeline. 

Utilities

The company is National Grid (LSE:NG). And to see why this makes sense, we need to take a closer look at Berkshire’s utilities division.

One of its existing subsidiaries – PacifiCorp – is facing big legal risks. These are related to the California wildfires from 2020 and 2022. The business has already paid $575m to settle claims. But the number being speculated as a potential total is closer to $50bn. 

As a result, its credit rating has been downgraded. And that means higher costs and collateral requirements for borrowing.

Berkshire’s balance sheet means bankruptcy is out of the question. But Buffett has said the firm won’t finance legal risks indefinitely.  PacifiCorp has sold assets to raise cash, but the legal risk remains. And that’s where National Grid – potentially – enters the picture.

National Grid

In California and Oregon, liability comes down to PacifiCorp’s equipment causing the fires. Importantly, it doesn’t have to be found negligent. Greg Abel – Berkshire’s new CEO – sees this as contrary to the social contract between states and utilities. But the situation in the UK is different. 

In Britain, a claimant has to prove actual negligence in order to win a payout. And the chances of a forest fire are much lower in the first place.

On top of this, National Grid has recently accepted the RIIO-3 framework. That increases its allowed return to 6% (in real terms) until 2031. That means there’s a lot more regulatory certainty here than in the US. And this is what makes utilities attractive investments in the first place.

This is why some analysts have identified National Grid as a potential Berkshire acquisition. But the case doesn’t stop there.

Returns

Becoming part of Berkshire Hathaway could bring some changes at National Grid. And there’s a lot of scope for higher returns.

One is the dividend. National Grid shares currently come with a 3.8% yield. As part of Buffett’s company, that wouldn’t be necessary. Instead, the business could reinvest all the cash it generates. And an attractive regulated return makes this a nice growth opportunity.

On top of this, Berkshire could use its cash to reduce National Grid’s significant debt. That would bring down costs, boosting returns further. In other words, there’s scope for the business to reinvest more of its capital at more attractive rates. And this makes it much more attractive.

This, however, only happens as part of a firm like Berkshire Hathaway. So it’s not a reason for ordinary investors to consider buying the stock.

Will it happen?

A number of analysts are connecting Berkshire Hathaway and National Grid. And there’s a lot of careful thought behind it. 

One of the major obstacles was the fact the FTSE 100 stock was up significantly in 2026. But it’s fallen 10% in the last month.

Another potential issue is the UK government’s ability to block the deal. That might scupper any deal and creates uncertainty.

Takeover talk can be good for shareholders of the company being acquired. But in this case, I’m buying shares in the one doing the acquiring.

The post Is Warren Buffett’s firm about to buy this FTSE 100 company? appeared first on The Motley Fool UK.

More reading

• Are National Grid shares an oasis of calm as the FTSE 100 goes crazy?
• Stock market correction? A passive income opportunity!
• With oil & gas prices rising, are there only 2 FTSE 100 stocks to consider buying now?
• Is it worth me buying National Grid shares now that they’ve dipped under £13?
• 2 UK shares that could surge in 2026 if the Bank of England cuts interest rates

Stephen Wright has positions in Berkshire Hathaway. The Motley Fool UK has recommended National Grid Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

See author's posts