NextEra to Buy Dominion for $67 Billion to Create U.S Power Giant

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1:27Scarlet Fu:Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Merger Monday, definitely here. NextEra Energy agreeing to pay about$67 billion in stock for Dominion Energy, the biggest power acquisition ever. That's pretty cool. Dominion, I know those folks. They're down there in Richmond, Virginia, one of my favorite places. Emily Forgas joins us here, energy reporter for Bloomberg News.

2:08Emily, talk to us about this deal. It's a monster-sized deal. Why is NextEra buying Dominion? Yeah, it's such a great question. There are many answers. The one that I've heard the most from analysts so far is that NextEra needs to rebalance its utility business versus its unregulated, non-regulated development business. Its development business for renewables has grown astronomically in the past few years because of demand largely from data centers. And it needs to rebalance more back to its regulated side. That's what credit rating agencies require of them. So they either needed to sell generation or buy a regulated utility.

2:45How is AI and the need for electricity? We're seeing it all over. How is that driving this deal? Yeah, I mean, Virginia, where Dominion operates mainly, is home to Data Center Alley, which is the biggest concentration of data centers in the U.S. Is that right? Yeah. Wow. Northern Virginia. And Virginia is struggling to meet that demand. And the demand forecasts for the next few years are completely outstripped what these utilities can provide at this moment in time. And that's the story across the country. And so NextEra now being by far the biggest utility in the country once this goes through, the challenge for NextEra would be to try to provide energy for those data centers.

3:31Wow. All right, you said they're going to create the biggest. So I'm thinking the regulators are just licking their chops here to review this deal. What are the companies saying about the regulatory hurdles they need to clear? Yeah, there is there's a long list of regulatory bodies within the power sector that will need to look at this deal. Some analysts that I've talked to, though, have been pretty positive about this going through, especially from the Virginia legislature side and regulators in Virginia. Virginia really needs some some help with meeting this power demand. and NextEra comes with a whole host of renewables and a lot of development on a strong utility side and are pledging to use batteries in the area and things like that to meet demand.

4:11So the analysts I've talked to have been pretty positive from that perspective. What do we know? I don't know that much about NextEra. I see they're down in their Florida company. I think this feels like the old Florida power and light or something like that. What do we know about NextEra? Yeah, so NextEra has a utility in Florida, but then also has a huge development business. It's become one of the biggest renewable energy developers in the U.S. in the past couple of years. And as I said, that demand has been proven by how big the renewable energy arm of Nextera has gotten. And this is why this rebalance is quite necessary.

4:43Are analysts saying get ready for some more consolidation in the utility industry? Is just the beginning? What are they saying? Yeah, they are definitely saying get ready for more consolidation. One of the reasons is that all of these utilities are pledging to spend trillions of dollars on like new generation, new transmission, basically upgrades to the grid over the next five years. And each one of these new like a new gas plant costs billions of dollars. And so these utilities are striving to get bigger and bigger, bigger market caps, more money behind them so that they can reasonably pledge all of that money that's necessary to upgrade the grid and add new generation.

5:20I read the book called The Grid. Ah, do you? Yeah, so I'm all in on this. But I guess one of the questions is, who's going to pay for all this? Is it going to be the rate payers like me and you and Charlie? Well, Charlie's definitely going to pay. Or is it going to be, you know, if Google wants this big data center, you pay for it, Google? Yes. So that's still the major million dollar question. But I will say that there have been certain pieces of legislation that are passed or in or being talked about right now. that would answer this question. What the big tech companies have said that they are willing to pay for the new generation that's necessary to meet their demand.

6:01The question is whether or not they will pay for all of the upgrades or whether or not some of that capex that these utilities are going to have to spend will trickle down to rate payers. So far, Bloomberg did an analysis that shows that so far the data center boom has made electricity prices higher and electricity prices inflation outpaced overall inflation last month. And I would think in the like in the metro Washington, D.C. area, Virginia, all that kind of stuff, those folks are probably pretty sensitive to that. Yeah, yes, exactly. And electricity prices are already forecast to be a really big part of the midterms this year.

6:36And so that's always going to be the backdrop of the conversation with a big deal like next there in Dominion.

6:42Scarlet Fu:Stay with us. More from Bloomberg Intelligence coming up after this. If your finance team spends more time finding data than using it, if there's one entity here and one here and one here and one here, if scaling your business feels like starting over, you need the Intuit ERP. Intuit Enterprise Suite is the AI-native ERP solution that's powerful, painless, and proven. Learn more at intuit.com slash ERP. Support for the show comes from Public. Lately, it feels like there are two types of investing platforms. Some are traditional brokerages that haven't changed much in decades, and others feel less like investing and more like a game.

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8:08Scarlet Fu:If you follow markets, you know the value of long-term thinking. You plan, you diversify, you prepare for volatility. But even the best strategies can't prevent every bad day. For more than 75 years, Cincinnati Insurance has helped individuals and businesses navigate tough moments with expertise, personal attention, and independent agents who focus on relationships, not transactions. The Cincinnati Insurance Companies. Let them make your bad day better. Find an agent at c-i-n-f-i-n dot com. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App.

8:54Scarlet Fu:Listen on demand wherever you get your podcasts or watch us live on YouTube. Once a quarter, they get this thing called the 13Fs get filed. So you can see what funds are buying and selling. And there's a whole cottage industry out there for people who do this for Berkshire Hathaway. What's Warren Buffett buying and selling? It's a little bit different this time because we've got a new CEO, Greg Abel. and I want to see what he's been buying and selling here. Matthew Palazzola, he knows he's a senior analyst covering the insurance biz, including Berkshire Hathaway for Bloomberg Intelligence. So what did we learn from this 13F from Berkshire Hathaway?

9:27What does Mr. Greg Abel, the new CEO, what's he doing? So we never know actually what's happening behind the scenes. They don't talk to analysts. They don't tell us anything. Warren Buffett is still around. He's the chairman. He goes in the office every day. So there could be some fingerprints on this, But maybe not because the biggest move was a dramatic increase in their stake in Alphabet. So they had about$4 billion, and now they have about$16 billion worth of Alphabet shares. And that was the biggest individual move in the quarter.

10:00Scarlet Fu:And Buffett is known for investing in things he understands. That's kind of how he puts it, right? He wants to be able to understand the business model, and then he's in on it. Does Greg Abel have a self-professed philosophy on investing? Same. That was pretty much what he said in interviews was we think of it the same way. They took this initial Alphabet stake while Buffett was still there last year. But it could have been it could have been able then it could have been the investment deputy, Ted Welcher. So he does profess we want to understand the businesses. So I guess he understands Google's business.

10:39So any reason to think, first of all, give me the, what's that cash number that's on the balance sheet? I believe it's 380 billion. The reported number was too high because they had some settlements in there. Okay, so just give our listeners and viewers a ballpark. 380 billion dollars that they have on their balance sheet that supposedly they're supposed to invest. Anything, but that's been a problem because you can't find stuff out there that can put a dent in 380 billion dollars. Correct. So is there anything that Greg Abel may do to change that dynamic? bank so we talked about this before i think capital return i mean so what are you gonna do you're gonna buy something buy a whole company yeah uh return capital which seems to be a no-no uh i don't think he's in any rush to to buy a bit make a huge splash um and i also don't think you know as long as buffett is there that he's going to return capital in any meaningful way to investors so i think we'll see more of the same i think um this was still so the other story of this quarter is they sold a lot of stock, but that stock they sold was likely positions by one of the former investment deputies who left the firm.

11:45So they sold about, I think - The guy who went to J.P.

11:48Scarlet Fu:Morgan, right? Yes, Todd Combs. So they sold about 11 billion in positions that I think are related to him. Again, they don't tell you if they are. Included in that was a Visa and MasterCard. So they sold a lot in the quarter. The next story then was they actually sold more than they bought. But if they didn't do this, they would have bought more than they sold. So the story is he and for I think it was 14 quarters prior to this, they had sold more than they bought. So X, that big move, they would have actually been a net buyer of stocks for the first time. And I remember Warren Buffett a while ago talking about how he was going to go elephant hunting with his hoard of cash.

12:30Scarlet Fu:What was the last major acquisition they did make and how did that go. So they've bought a couple of sizable things. I mean, like they they bought the it was twelve billion dollars worth of Google stock in the quarter. Right. They bought a chemical company from Occidental for about eleven billion dollars last year. They bought Allegheny, which was an insurance company, holding company, the owner of Jeff Kirby Squishmallow fame that they people go crazy about at the annual meeting. So they've put money to work. It's just they're generating a lot of capital. So it's kind of offsetting. And I mean, they're doing like 10 billion at a clip is not insignificant.

13:12I think all of those deals, I don't know about the Oxychem deal, that's still ongoing. But I think the Allegheny deal was good for them. It bolstered a bunch of insurance businesses where they could use more scale. And those additional businesses have been good as well. All right. What else is going on in your world of property and casualty insurance here? I'm looking at the index. It's kind of flat for the year, I guess. I'm looking at the S &P property and casualty insurance thing, kind of flat. So I started my career in the tech boom and I got deja vu all over again. We're at the mercy of the, I guess, Stewie robots of the world where these names sell off when tech kind of gets more in favor, risk on.

13:52We are going to go into hurricane season. So the forecasts for hurricane season are about average. So, you know, if maybe you want to see me a little bit more, maybe we'll get more activity. I don't know. But you've got two things. So you've got the El Nino effect and then you've got hot sea surface temps. So hot sea surface temps increase hurricane activity, but the El Nino effect actually decreases it. So we've got two kind of countervailing forces going on in the Atlantic, which will kind of net out to probably an average hurricane season. So we'll see what happens.

14:28Scarlet Fu:I've been reading that the AI weather forecast will make these forecasts a lot more accurate than they have been in the past. So there'll be fewer surprises or that's what we should expect. It's possible. I think the thing is you can have a lot of hurricanes, but they don't really hit high value areas. And it doesn't matter all that much for my companies or society. or you can have just one and it kind of slips through and hits Miami or something like that. And then it's a disaster. I've I've heard similar things that, you know, the AI can help with modeling. But I think there's always going to be the weather wildcard.

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16:20Scarlet Fu:If you follow markets, you know the value of long-term thinking. You plan, you diversify, you prepare for volatility. But even the best strategies can't prevent every bad day. For more than 75 years, Cincinnati Insurance has helped individuals and businesses navigate tough moments with expertise, personal attention, and independent agents who focus on relationships, not transactions. The Cincinnati insurance companies. Let them make your bad day better. Find an agent at c-i-n-f-i-n dot com. You need to make a huge presentation in an hour. Adobe Acrobat uses AI to take all your documents and generate a presentation with a single click.

17:05Scarlet Fu:Build slides quickly and streamline the process. Need a last minute pitch deck? Do that with Acrobat. Need to level up your presentation design? Do that with Acrobat. You have 30 plus documents that need to be simplified into a proposal. Do that. Do that. Do that with Acrobat. Learn more at adobe.com slash do that with Acrobat. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. Let's talk about what's going on in the bond market because we had this massive sell-off in global bonds on Friday, pushing yields higher in the UK, in Japan, in the US.

17:54Scarlet Fu:And we're getting a little bit of relief today, but not so much because you look at the 10-year yield, it is still up at about 4.6%, the 30-year yield at 5.13%. Ira Jersey is our chief U.S. interest rate strategist. And Ira, this kind of makes things difficult for a new Fed chair, Kevin Warsh, who doesn't have to do anything right away, but he is gearing up for the FOMC later in June. Yeah, it's going to be hard for him to make the case that they should be cutting interest rates right now. And even though the market is higher, I think part of the issue is here is that we're seeing this global sell-off.

18:33So this isn't all just about U.S. Treasuries. It's not all about the U.S. either inflation expectations or monetary policy expectations. But it's the fact that you have in Japan and the U.K. in particular really serious questions about their fiscal health in the longer term. So, you know, if we want to call this bond vigilantes, I think that you can make the case that there's at least a little bit of that seeping into the markets via the kind of the back door into the Treasury market. So it's not Treasury specific, but it is a global developed market phenomenon. Scarlett, you know, you're a player in the global interest rate business.

19:09If in your email inbox, you receive the following document, Bloomberg Intelligence Federal Reserve Chair Transition Survey. That's what you get, really? If you're a player. Yeah. Ira, I know you sent this survey out to the main players out there in the marketplace. And you're talking about what does a new Fed chairman mean for the Fed? What did you guys learn? Yeah, so we put out that note this morning, Paul, and we found that the most surprising thing in there was not that Kevin Warsh is expected to be more dovish than Jay Powell. I think that that's certainly something that many people thought, given that he's being appointed by President Trump.

19:47But it's really that over two-thirds of the respondents thought that the yield curve would steepen, and you haven't seen that very much. So it might be very difficult for the yield curve to steepen at this point, especially if the market continues to think that the Fed's going to be relatively hawkish. You OK?

20:08Scarlet Fu:Let's go on. A little tickle in my throat talking about Kevin Walsh. Yeah, well, he's got a big, big heavy task in front of him. How does he fold in what's happening overseas? I mean, does that factor into his thinking, the FOMC's thinking at all? You talked about the return of bond vigilantes that's maybe seeping into the U.S. Do they just not focus on that at the moment? Yeah, so the Fed's going to focus on how the international environment's going to affect the U.S. economy, right? And I think that when you think about higher oil prices, when you think about the fact that you've had now higher yields, in a way, the market's doing the Fed's job for it, right?

20:46It's tightening financial conditions at a time when the growth is okay, right? The growth isn't great. Like it's very disjointed growth right now in terms of the consumer. And we know that, right? We call it the K-shaped economy. So they will take into account what's going on in Europe, what's going on in the UK, what's going on in Japan. These are our major trading partners, and these will have an effect on the US, right? We do export a lot. We do have large trade balances, both positive and negative with some of these countries. So all of that will be taken into account for sure. Now, Kevin Morsh, I think, would like to lower interest rates, but he wants to do that by cutting the Fed's balance sheet.

21:27And one of the things that did come out of the survey today was not many people in the investing community think that the Fed's going to be able to actually shrink its balance sheet. Earlier today on Bloomberg Surveillance, Ira, we had Gunit Dhingra, head of U.S. rate strategy at BNP Paribas, on. He was saying, basically, if you look at the third year, 5 % is the new 4 % kids. You better get used to it. How do you think about that? Yeah, you know, we've been hovering kind of between four and a half and five percent basically for a couple of years now. And five percent might not be the new four, but, you know, four and a half percent might be the new three and a half percent.

22:03And I think that that's that's pretty standard thinking, especially given that the U.S. fiscal situation has not improved any. Right. So we yes, we've seen slightly smaller deficits than we had a couple of years ago. But we also don't see any relief from that in sight. So it's hard to see why 30-year yields would go down very much when you are worried about longer-term inflation not being your target. And also, in particular, the size of the government's debt outstanding.

22:34Scarlet Fu:Ira, when you guys held your survey, you also asked about the legacy of outgoing Fed chair Jay Powell. What did you get from that? What was the takeaway for you? Yeah, most investors thought that Jay Powell did a pretty good job on communication. He did a good job maintaining the Fed's independence. Part of this is some people think that Kevin Morse won't be quite as independent as Jay Powell was. That certainly was one of the findings of the survey. But generally speaking, people were fond of Jay Powell. Most of them didn't think he was perfect, so we asked an open-ended question at the end of the survey.