BERKSHIRE LOSES ONCOR TO SEMPRA
Energy Future’s board accept improved US$9.45b bid for power transmission firm
BANKRUPT utility Energy Future Holdings will abandon a deal to sell power transmission company Oncor Electric Delivery Co to Warren Buffett’s Berkshire Hathaway Inc for US$9 billion (RM38.6 billion) and will accept a US$9.45 billion bid by Sempra Energy instead, said sources.
The development represents a rare blow for Buffett, who avoids bidding wars for companies and had swooped in two months ago to buy Oncor after two previous attempts by Energy Future to sell it were blocked by regulators.
It is also a defeat for Greg Abel, the chief executive of Berkshire’s energy unit who many investors consider a top candidate to eventually succeed Buffett, at the par- ent company’s helm.
Energy Future’s board decided to make the switch on Sunday after Sempra also offered assurances it could get its acquisition of Oncor approved by the Public Utility Commission of Texas (PUCT), as well as a United States bankruptcy judge, said the sources.
Berkshire had issued a statement last week to say it would not be raising its offer for Oncor. However, in response to Sempra’s bid, Berkshire offered to allow Energy Future to keep an Oncor dividend, but that proposal was not enough to bridge the gap in price, the sources added.
The bidding war for Oncor underscores how power generation is becoming more commoditised and less lucrative in the eyes of utilities, which have become wary of their exposure to volatile energy prices.
Instead, many utilities are now hungry for electricity distribution assets with a growing demographic base and stable cash flows. Oncor delivers power to more than 3.4 million homes and businesses through roughly 196,000km of transmission and distribution lines.
Hedge fund Elliott Management Corp had opposed the sale to Berkshire, arguing it undervalued Oncor and threatening to veto the deal. Elliott had also been trying to put together its own bid for US$9.3 billion to buy Oncor.
Sempra decided to make an offer for Oncor in the last three weeks, after seeing the opposition that Berkshire faced from Elliott as an opportunity to interlope, said the sources.
Elliott has now indicated it will support Oncor’s sale to Sempra, said one of the sources.
Berkshire had told the PUCT it would accept “ringfencing” on its acquisition of Oncor, restricting its ability to extract cash from the company or add more debt to it.
Sempra had indicated that it would make similar concessions on ringfencing, said the sources.
A separate plan to sell Oncor to a group of creditors and investors led by Hunt Consolidated Inc collapsed last year, after hitting obstacles at the regulator.
As a result, Energy Future has been stuck in bankruptcy since it filed for Chapter 11 protection in 2014, as plans to sell Oncor, repay creditors and fund its exit collapsed under regulatory scrutiny. Reuters