Berk­shire’s $9B bid for Texas util­ity goes to reg­u­la­tory board

Northwest Arkansas Democrat-Gazette - - BUSINESS & FARM - RYAN COLLINS AND JIM POLSON

War­ren Buf­fett’s Berk­shire Hath­away Inc. is wast­ing no time try­ing to win over Texas reg­u­la­tors in its bid for On­cor Elec­tric De­liv­ery Co., the state’s largest elec­tric-trans­mis­sion op­er­a­tor.

Berk­shire is promis­ing an in­de­pen­dent board of direc­tors with sole au­thor­ity over div­i­dends, and will shield On­cor from po­ten­tial bank­ruptcy at other Berk­shire units, ac­cord­ing to a doc­u­ment pro­vided to Bloomberg by On­cor spokesman Ge­of­frey Bai­ley. Berk­shire early Fri­day an­nounced an agree­ment to buy On­cor par­ent En­ergy Fu­ture Hold­ings Corp. for $9 bil­lion in cash.

Berk­shire will be the third com­pany to come be­fore Texas reg­u­la­tors seek­ing per­mis­sion to buy a util­ity that they have so far highly guarded. Just a week ago, the state re­jected Nex­tEra En­ergy Inc.’s $18 bil­lion bid to buy On­cor for a third time, de­cid­ing the merger wasn’t in the public in­ter­est. Last year, it quashed an of­fer from Hunt Con­sol­i­dated Inc.

“I ap­plaud both Berk­shire Hath­away En­ergy and On­cor for their pro­duc­tive ef­forts,” Brian Lloyd, ex­ec­u­tive di­rec­tor of the Texas Public Util­ity Com­mis­sion, said Fri­day in an emailed state­ment. In ad­di­tion to strength­en­ing fi­nan­cial “ring-fenc­ing” re­quire­ments by the state, Berk­shire and On­cor “are propos­ing ad­di­tional as­sur-

an­ces re­gard­ing On­cor’s in­de­pen­dence, fi­nan­cial in­tegrity, and to in­vest in in­fra­struc­ture, cy­ber­se­cu­rity and sys­tem re­li­a­bil­ity,” Lloyd said.

Berk­shire’s com­mit­ments were filed Fri­day with the court over­see­ing the bank­ruptcy of En­ergy Fu­ture Hold­ings, ac­cord­ing to Bai­ley. The all-cash of­fer for En­ergy Fu­ture im­plies an eq­uity value of about $11.25 bil­lion for 100 per­cent of On­cor, Omaha, Neb.-based Berk­shire said in a state­ment Fri­day. The of­fer ap­pears to be worth about $1 bil­lion less than Nex­tEra’s, peo­ple fa­mil­iar with the sit­u­a­tion said, ask­ing not to be iden­ti­fied be­cause the in­for­ma­tion hasn’t been pub­licly dis­closed.

“On­cor is an ex­cel­lent fit for Berk­shire Hath­away, and we are pleased to make an­other long-term in­vest­ment in Texas – when we in­vest in Texas, we in­vest big!” Buf­fett, chair­man of Berk­shire Hath­away, said in the state­ment. “On­cor is a great com­pany with sim­i­lar val­ues and out­stand­ing as­sets.”

Berk­shire has ac­cepted lim­its on its con­trol of On­cor’s board that Nex­tEra had pre­vi­ously re­jected. Texas had de­manded that Nex­tEra give up con­trol over who would be on On­cor’s board and how much money, if any, Nex­tEra could ex­tract from the com­pany. Nex­tEra told reg­u­la­tors it wouldn’t buy On­cor un­less it can con­trol the board and set fis­cal poli­cies.

Berk­shire’s com­mit­ments ap­pear “to meet many of the ob­jec­tions that were raised about the Nex­tEra ac­qui­si­tion,” Tom Smith, di­rec­tor of spe­cial projects for the Texas of­fice of Public Cit­i­zen, a con­sumer group, said by phone Fri­day. The cash of­fer also avoids the “in­no­va­tive, weak fi­nanc­ing” pro­posed by Hunt, Smith said.

A takeover of On­cor is key to end­ing the bank­ruptcy of En­ergy Fu­ture Hold­ings, formed by KKR & Co., TPG Cap­i­tal and Gold­man Sachs Cap­i­tal Part­ners as part of the big­gest lever­aged buy­out in his­tory. The com­pany’s been work­ing since 2014 to re­struc­ture $50 bil­lion of debt.

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