Warren Buffett

Sempra Energy gatecrashes Warren Buffett’s Oncor deal

The deal pits Warren Buffett, pictured, against Elliott Management chief Paul Singer.

Sempra Energy has gatecrashed Warren Buffett’s deal to buy Oncor, reaching an agreement worth $18.8bn, including taking on more than $9bn in debt, with the owner of the Texas utility.

The board of Sempra, a California energy utilities group, and Oncor’s parent Energy Future Holdings signed off on the deal on Sunday night, according to two people involved in the transaction. Sempra confirmed the agreement early on Monday morning.

The deal pits two giants of US finance against each other, with Mr. Buffett squaring off against Elliott Management chief Paul Singer, who has become one of the most high-profile activist investors on Wall Street.

Elliott Management is the largest creditor of bankrupt Energy Future Holdings and has backed Sempra’s bid instead of Mr. Buffett’s, the hedge fund confirmed in a statement on Monday morning.

Elliott had vowed to oppose the $18bn offer, including debt, made in July by Mr Buffett’s Berkshire Hathaway, arguing it was too low and not in creditors’ interest, these people added.

Last week, Elliott acquired a specific class of debt worth about $60m from Fidelity Investments that gave it the power to block Berkshire’s offer. The move by Mr Singer, who made his own rival proposal to buy EFH in July, would have forced Berkshire to raise its offer or walk away from the deal.

A person close to Sempra said the California group viewed the public fight between Berkshire and Elliott as an opportunity to emerge as a “white knight” for EFH, which went bankrupt in 2014 but still controls 80 per cent of Oncor.

“It is important for Oncor to remain financially strong,” said Debra Reed, Sempra chief executive, in Monday’s statement announcing the deal.

“Our proposal will help bring a satisfactory resolution to Energy Future’s bankruptcy case, keep Oncor financially strong and protect Oncor customers, while addressing the needs of Texas regulators, creditors, and the US bankruptcy court.”

Sempra also argued on Monday that buying Oncor would boost its earnings from next year.

“This transaction is expected to enhance our earnings beginning in 2018 and further expand our regulated earnings base while serving as a platform for future growth in the Texas energy market and US Gulf Coast region,” Ms. Reed added.

Elliott, which believes Berkshire’s offer would be damaging for creditors of EFH, had proposed to buy Oncor for about $18.5bn, a plan in which the hedge fund would convert its debt into equity accompanied by an injection of fresh cash via a third-party partnership.

“Elliott is supportive of the proposed Sempra transaction, which provides substantially greater recoveries to all creditors of Energy Future than the proposed Berkshire transaction,” the hedge fund said.

Mr. Buffett and Greg Abel, Berkshire Hathaway Energy chairman, and chief executive, said in a statement on Thursday that they stood by their agreement to buy Oncor and did not plan to raise their offer.

“We appreciate the continued opportunity to collaborate with many stakeholder groups in Texas and thank them for their outstanding support, which sets our offer apart from any other bid,” Mr. Abel said. “We’re committed to being an exceptional long-term partner in Texas and our simple, straightforward deal is good for Oncor, its customers, and the state.”

Berkshire emerged as a credible buyer for Oncor after several suitors were blocked by Texas regulators. Warren stated that Berkshire was happy to keep Oncor independent from the rest of his existing energy group. A move Texas regulators believe would protect the domestic utility group in case the parent ever went bankrupt.

EFH, which was formerly known as TXU, was infamously acquired by KKR, TPG Capital and the buyout arm of Goldman Sachs in 2007 for $45bn in what turned out to be the largest leveraged buyout in history. However, the debts raised to buy the group weighed so heavily on the company that it was eventually unable to service them.

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