Berkshire Hathaway Outbid By Sempra For Oncor Electric Delivery

Posted August 22, 2017

For now, Sempra has out-bid Berkshire, but Berkshire had worked with Texas regulators to craft a deal that would win their approval, and Sempra's deal is still subject to regulatory approval by the Public Utility Commission of Texas.

The deal is key to ending Energy Future's bankruptcy, which has now spent more than three years working to restructuring nearly $50 billion of debt. It said it will fund the deal with a combination of its own debt and equity, what it called third party equity and "3 billion of investment grade debt at the reorganized holding company". The deal still needs the approval of the Public Utility Commission of Texas, U.S. Bankruptcy Court of Delaware, Federal Energy Regulatory Commission and the U.S. Department of Justice. Sempra said Monday, Aug. 21, that it will also pick up $9.35 billion of the company's debt. The Dallas-based Oncor holding company, formerly TXU Corp., at the the time struck agreements with key stakeholders to cut about $40 billion in debt, lower interest expenses, access additional capital "and create a sustainable capital structure for the future". Berkshire has said it'll walk away from the deal if a judge doesn't approve the plan on Monday. We believe our agreement with Energy Future will help ensure that Texas utility customers continue to receive the outstanding electric service they have come to expect from Oncor and provide stability to Oncor's almost 4,000 employees. Previously, in April Texas regulators rejected a proposed $18 billion sale of Oncor to NextEra Energy Inc. Next-Era lost in the original bidding process to Hunt.

"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 NY.

When Energy Future was formed 10 years ago, utility commissioners insisted on a financial and corporate ring fence around Oncor to keep bankruptcy from dragging it down.

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The company runs power and gas utilities in Southern California, Chile and Peru reach to over 32 million customers.

Last year, Sempra pulled out of talks to buy a stake in a planned $6.5 billion natural gas pipeline project in Peru after the country's government refused to a remove a condition but has since said it may re-bid for the project.

In response to the Sempra bid, Berkshire Hathaway CEO Greg Abel said he was disappointed, but said the company still would be looking for opportunities.

Berkshire, which made the offer to Oncor in order to step up its pursuit of steady profits from utilities and infrastructure deals, did not immediately respond to a request for comment. That might allow Elliott to block the Berkshire deal as a so-called dissenting impaired class of creditor under bankruptcy law.