Dive Brief:
- Warren Buffett's Berkshire Hathaway Energy announced a $9 billion all-cash deal to purchase bankrupt Energy Future Holdings, resulting in the acquisition of its utility subsidiary Oncor. The deal has an enterprise value of about $18 billion, including debt, according to media outlets.
- The Public Utilities Commission of Texas (PUCT) recently rejected NextEra Energy's proposal to to purchase Oncor for $18.4 billion, as well as a previous proposal by Hunt Consolidated to spin the utility into a Real Estate Investment Trust (REIT).
- Berkshire Hathaway expects the deal to close in the final quarter of 2017, provided it can secure state, federal and court approvals.
Dive Insight:
Oncor has another suitor: Warren Buffett.
After two companies failed to pass muster with regulators, Berkshire Hathaway Energy is taking a stab, announcing a $9 billion all-cash deal for Oncor's parent company, Energy Future Holdings.
The deal implies an equity value for Oncor at $11.25 billion, according to Berkshire's release, and Oncor's enterprise value has been pegged above $18 billion.
It would not be the first time Buffet has been involved with the company, Reuters notes. Four years ago, he lost more than $870 million on Energy Future Holdings bonds—Oncor's parent. EFH declared bankruptcy in 2014 and has been mired in court proceedings since.
A bid by Buffett would need to be approved by a federal bankruptcy court, as well as state and federal regulators. But previous bids have cleared those hurdles relatively easily, only to have run into trouble at the PUCT.
Wall Street Journal notes the deal aligns with Buffett's energy goals. The company continues to purchase regulated utilities as a way to boost its overall credit rating, and its energy unit contributed roughly 9.5% to its $24.07 billion in earnings last year.
In 2016, the PUC rejected a bid by Hunt Consolidated to purchase Oncor and manage it as a Real Estate Investment Trust. Oncor would have been the largest utility ever run as a REIT.
Then, this year, another bid by NextEra Energy was rejected — three times.
NextEra promised to shell out $18.4 billion for the utility, but resisted regulators' demands to ensure Oncor's independence and financial security. In April, NextEra CEO Jim Robo announced the company would ask the commission to reconsider its initial rejection, but held firm on issues around Oncor board members and its ability to access dividends.
The PUC rejected its request for rehearing twice, leading to Berkshire Hathaway's bid. According to Reuters, Warren Buffett's company was previous a leading bidder for the utility. If the deal goes through, Oncor CEO Bob Shapard will take on the role of executive chairman of the Oncor Board and current senior vice president Allen Nye replace him as CEO.
Oncor is the largest T&D utility in Texas and the sixth largest in the United States. The utility serves more than 10 million Texas residents in more than 400 cities and 90 counties and manages more than 121,000 miles of power lines.
