U.S. utility owner Sempra Energy has agreed to buy control of Texas power distributor Oncor Electric Delivery Co. for $9.45 billion, topping a bid by Warren Buffett's Berkshire Hathaway Inc.
Sempra's deal for Energy Future Holdings Corp., which owns 80 percent of Oncor, is valued at about $18.8 billion including debt, San Diego-based Sempra said in a statement Sunday. Sempra plans to fund the purchase through a combination of its own debt and equity, as well as third-party equity and $3 billion of borrowings by the reorganized company, it said.
Sempra is the latest suitor seeking to take over Oncor since its parent, Energy Future, declared bankruptcy in 2014. Just six weeks ago, Berkshire struck a deal to buy Oncor for $9 billion. Shortly after, billionaire investor Paul Singer's Elliott Management Corp. fired back, saying it was working to pull together a rival bid that may total $9.3 billion. The move triggered a public battle for the Texas utility.
Elliott voiced its support for the Sempra deal Monday, saying in an emailed statement that it provides "substantially greater recoveries" to all Energy Future creditors than Berkshire's offer would have. The hedge fund is among Energy Future's biggest debt holders. Energy Future has terminated Berkshire's offer, Berkshire said Monday in a statement.
Sempra has been working on its bid for weeks while Elliott and Berkshire fought publicly, according to a person familiar with the matter who asked not to be identified because the details aren't public. Elliott's move to buy up about $60 million worth of unsecured debt -- giving it the ability to block the Berkshire bid -- cleared the way for Sempra's offer, the person said. It would be Sempra's largest acquisition since it was formed in 1998, based on data compiled by Bloomberg, and would expand its U.S. utility territory beyond California.
Elliott and Berkshire provided a road map for Sempra's offer, the person said. Elliott set a benchmark for Oncor's value with its planned $9.3 billion bid. Berkshire outlined 44 regulatory commitments that were signed off on by various stakeholders, including the Public Utility Commission of Texas staff. Sempra is comfortable meeting those conditions, including measures to protect Oncor's credit, the person said.
The deal is key to ending Energy Future's bankruptcy, as the company has now spent more than three years working to restructure almost $50 billion of debt. On Monday, U.S. Bankruptcy Judge Christopher Sontchi scheduled a Sept. 6 hearing to consider approval of the merger agreement with Sempra and its $190 million termination fee. The Berkshire deal included a termination fee of $270 million, subject to certain conditions and court approval, according to a regulatory filing.
Elliott would recover 45 cents to 50 cents on the dollar of its investment in the unsecured debt in Oncor's parent under Sempra's offer, compared with 18 cents in the Berkshire bid, according to people familiar with the matter who asked not to be identified because the details aren't public. Sempra's offer must still clear the bankruptcy court and win the approval of the two Public Utility Commission commissioners, among other regulatory approvals.
Sempra shares rose as much as 1.9 percent Monday, the most since March 15. It received financing commitments for the deal from RBC Capital Markets and Morgan Stanley, according to the statement, and expects the transaction to be completed in the first half of next year. Lazard and Morgan Stanley advised Sempra, with White & Case LLP acting as legal adviser, it said.
Others have tried and failed to take over the Texas utility, which serves almost 10 million customers and operates more than 106,000 miles of distribution lines.
Earlier this year, Texas utility regulators quashed an offer from NextEra Energy Inc., valued at $18.4 billion including debt, after the utility giant refused to establish ring-fencing measures to protect Oncor's credit. A group led by Hunt Consolidated dropped a bid last year after the state imposed conditions it found too onerous.
"It's not just a question of what you're offering -- it's a question of whether or not it's going to make Texas regulators feel comfortable enough to allow the deal," said Paul Patterson, a utilities analyst at Glenrock Associates LLC in New York. "And we've already seen two fail in this situation."
Information for this article was contributed by Scott Deveau, Matthew Monks, Noah Buhayar and Dawn McCarty of Bloomberg News.
Business on 08/22/2017