Canadian with ties to hockey may succeed Buffett
University of Alberta grad Greg Abel earns praise for deal-making skills
Warren Buffett’s likely successor comes armed with a University of Alberta business degree, a legendary hockey connection — and a penchant for deal making.
Edmontonian Greg Abel heads Berkshire Hathaway Energy division, which accounts for 21 per cent of the conglomerate’s revenues and just over nine per cent of its earnings.
In a letter to shareholders last weekend, Berkshire Hathaway Inc.’s vice-chairman Charlie Munger identified Abel, 52, and Ajit Jain, 63, as the two candidates most likely to become CEO of the $365-billion US corporation, “if Buffett left tomorrow.”
“Given the new comments regarding the age of the CEO, they are looking for someone young with the capacity, willingness and ability to serve for 10 years or more,” said Jim Shanahan, senior analyst at St. Louis-based Edward Jones. “Abel is younger than Ajit, may be that is the differentiating factor.”
But it’s not just ageism that would compel Buffett and Munger to hand Abel the reins of their Omaha-based conglomerate with stakes in business as diverse as coke and coal.
Buffett has been testing Abel for quite sometime and this year allotted him the biggest chunk — $6.5 billion — of the company’s capex to the energy division. That was more than any other unit in the company; BNSF Railway CEO Matthew Rose — also sometimes viewed as a possible candidate — secured $5.2 billion to expand the transportation division.
“There are not that many executives within the Berkshire Hathaway pantheon that have that level of capability,” said Meyer Shields, analyst at New York-based Keefe, Bruyette & Woods Inc. “Abel’s track record is extremely successful. Obviously there will be some level of adjusting if he is moving into the much larger role — but he already runs a very large enterprise very successfully.”
The clincher for Abel may be his deal-making skills. According to a University of Alberta profile, Abel started as a finance major before switching to accounting as his major and completed his CA designation with PricewaterhouseCooper. But his big break came when he joined Des Moines, Iowa-based CalEnergy Resources Ltd. — a career path that ultimately drifted him into Buffett’s orbit.
It was when he moved to the U.K. in 1996 to oversee Calenergy’s acquisition of U.K.-based Northern Electricity utility that Abel caught the eye of Walter Scott, a friend of Buffett and shareholder in Mid-American Energy Holdings, according to Jeff Matthews, author of ‘Warren Buffett’s Successor — Who It is and Why It Matters’, who identified Abel as one of the candidates in his book published in 2013.
Two years later, Abel returned to the U.S. to oversee CalEnergy’s $4-billion acquisition by Berkshire-run Mid-American Energy Holdings.
In 2005, he led a US$5-billion acquisition of Portland, Ore.-based utility company PacificCorp. Impressed with the Canadian, David Sokol — once tipped to succeed Warren Buffett before a spectacular fallout with his boss in 2011 — recommended that Abel run Mid-American while he fixed the company’s troubled NetJet businesses.
Running the acquisitive Mid-American made Abel a money-maker “in the eyes of Buffett,” Matthews writes.
“He is also a deal-maker — a skill also highly prized by Buffett, who has made acquisitions a critical piece of Berkshire’s past growth, and likely its future as well.”
Berkshire’s $3.1-billion acquisition of Calgary-based electricity transmission provider Altalink LP last year and $5.6-billion purchase of Nevada-based NV Energy in 2013 cemented Abel’s position as an M&A man.
Based in Des Moines, Abel now runs a $74-billion business in which coal-fuelled utilities sit easily with the company’s major renewable interests.
“They weren’t even in renewables about 10 years ago. And now they have one of the largest producers of wind energy in the U.S.,” Shanahan said. “The energy space is of significant importance and No. 1 contributor to Berkshire’s revenues.”
Abel will have stiff competition from Jain, the company’s insurance guru, who runs businesses that ultimately generates the cash flow that feeds capital to other units.
“I believe that Abel might be the front-runner, because Ajit Jain is too important to insurance,” Shields said. “Abel can serve in the role of capital allocator and identify talented managers to run different operating companies. Jain is also critically important but for different reasons, because no one can underwrite like Ajit Jain.”
Buffett also bumped up Abel’s compensation package to $27 million from $10 million in a sign of his value to the company.
“His compensation package highlights that Berkshire values his talent,” Shanhan said.
People skills are vital to Buffett, who is a cult figure among investors thanks to a folksy charm that hides a steely resolve to succeed.
“What strikes you when you meet Abel, that he really is a regular, personable guy,” said Joseph Doucet, dean of Alberta School of Business at the university, which honoured Abel in 2013 with a Distinguished Alumni Award. “He is genuine, very friendly and very open. He is certainly not consumed with his own persona.”
Abel still finds time to visit family in Alberta frequently and remains a big fan of Detroit Red Wings — his older cousin, the legendary Sid Abel who played for, coached and managed the hockey team in the 1940 and ‘‘50s. Abel’s office did not respond to an interview request.
“Mr. Buffett in Nebraska and Greg in Iowa — they are not in a tall tower in New York,” Doucet said. “When Greg talks about the energy sector, whether it’s electricity or renewables, it is clear that it’s also about the people involved such as the linesman climbing poles, and citizens who live near wind farms — they are important and significant to his business.”
While the speculation over the CEO would continue, it’s clear that whoever lands the top job will have the unenviable task of being compared to one of the most successful investors that ever trod Wall Street.
“Frankly, Berkshire’s disclosures are very weak and Warren Buffett, by virtue of his own personality, can get away with it in a way that his successor probably will not be able to — there will be a lot more scrutiny,” Shields said.