Dive Brief:
- Sempra Energy announced a bid for Energy Future Holdings, the parent company of Texas utility Oncor, after EFH abandoned a $9 billion bid from Warren Buffett's Berkshire Hathaway.
- Under the terms of the deal, Sempra would pay $9.45 billion in cash and finance the deal with a combination of its own debt and equity, third-party equity and an expected $3 billion in investment-grade debt at the reorganized holding company. The transaction's enterprise value would be roughly $18.8 billion.
- The deal is expected to close in the first half of 2018 after clearing regulatory and legal hurdles. Reuters reports Sempra seized an opening after EFH's main creditor Elliott Management Corp. criticized Berkshire Hathaway's bid for undervaluing Oncor. Elliott previously attempted to put its own $9.3 billion bid together for Oncor, but has now told Reuters it is supportive of Sempra's bid.
Dive Insight:
Sempra is simply Oncor's latest suitor after a series of acquisition bids and rejections over the last few years. The first suitor, NextEra Energy, made three attempts to woo state regulators after clearing a series of other federal and legal approvals to acquire Oncor Electric for $18 billion, but ultimately failed to gain their approval. NextEra sought to rework Oncor's ringfencing provisions to give it access to dividends from the regulated utility, but regulators balked at both attempts.
NextEra's bid came after Hunt Consolidated abandoned its bid for the Texas utility. Hunt originally sought to spin Oncor into an Real Estate Investment Trust, but in the end, the Texas PUC wasn't sold on the concept, so Oncor and EFH went back to square one.
Enter Warren Buffett. In July, the energy unit of Berkshire Hathaway announced a $9 billion cash bid for the T&D utility. The deal would have kept those ringfencing protections in place. Analysts said the simplicity of Buffett's offer could play in its favor, but Elliott Management opposed the deal, saying it undervalued Oncor.
Last week, Reuters reported Berkshire Hathaway planned to continue with its original offer. Elliott Management holds additional portions of EFH debt through an impaired class of notes, meaning its approval was likely necessary for the deal to go through. The creditor said it would place its own bid at $9.3 billion. But now Sempra Energy is the newest suitor, and its bid has crucially secured Elliott's approval. Time will tell if Sempra can finally overcome the hurdles that have prevented previous deals from getting done.
Widely viewed as EFH's prized asset and key to the EFH's bankruptcy plan, 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.
