Buffett's Berkshire Nears a Deal to Buy Oncor--2nd Update

By Dana Mattioli, Nicole Friedman and Peg Brickley Features Dow Jones Newswires

Berkshire Hathaway Inc.'s energy business is nearing a deal to buy Oncor, one of the country's largest electricity-transmission businesses, according to people familiar with the matter.

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A deal by Warren Buffett's Berkshire Hathaway Energy Co. to take over Oncor could be announced as soon as Thursday, the people said.

The deal's financial terms couldn't be learned, but the total value is less than the $18.4 billion that NextEra Energy Inc. agreed to pay for Oncor in a deal with Energy Future Holdings Corp. in July 2016, according to a person familiar with the matter.

Berkshire Hathaway had $96.5 billion in cash as of March 31, and Mr. Buffett told shareholders in May that he is eager to find spaces to spend it.

The deal for Oncor would mesh well with his energy ambitions. Berkshire Hathaway Energy, formerly known as MidAmerican Energy, is 90% owned by Berkshire and contributed about 9.5% of the company's $24.07 billion of net earnings in 2016. The energy unit provides electricity to customers in 18 western and Midwestern states as well as in the U.K. and Canada, according to its website. It also owns large renewable generation assets, natural-gas pipelines and HomeServices of America, a real-estate brokerage firm.

Oncor is an electricity mover, transmitting power over 121,000 miles of lines across the largest electrical-distribution network in Texas, according to the company. Oncor employs more than 3,000 workers.

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NextEra's deal for Oncor, widely regarded as Energy Future's crown jewel, stalled as regulators in Texas rejected the agreement, saying it wasn't in the public interest. NextEra had been pursuing Oncor since 2014, seeking to add the stable, cash-producing company to its collection of energy businesses.

A deal for Oncor would be the next step in one of the largest bankruptcy proceedings on record: Energy Future's $42 billion bankruptcy filed in 2014. A decade ago, KKR & Co., TPG and Goldman Sachs's private-equity arm led a $32 billion takeover of Energy Future, the Texas utility formerly known as TXU Corp., in what was the largest leveraged buyout in history at the time. The buyers were betting that natural gas prices would rise as U.S. reserves shrank. Instead, prices tumbled amid a boom in shale-gas production.

The drop in natural gas caused electricity prices to fall in Texas, resulting in billions of dollars of losses for Energy Future. The Dallas-based company collapsed into bankruptcy in the spring of 2014 under the weight of more than $40 billion in debt.

Oncor, a regulated business, was part of the 2007 buyout but was left out of the bankruptcy case. Texas regulators, worried about what would become of part of Texas' electricity backbone in the hands of private-equity owners, had insisted on ringfencing provisions that shielded Oncor from the financial trouble that was to push its majority owner, Energy Future, into chapter 11.

During the contentious chapter 11 proceeding, the initial bankruptcy deal fell apart, and creditors and outside suitors including Hunt Consolidated Inc. of Texas and Florida's NextEra began sparring for the right to bid on Oncor. Berkshire Hathaway was also a contender, but Energy Future chose first an investment consortium led by Hunt and then a proposal from NextEra as the deal to chase. Texas regulators stymied both deals, leaving Energy Future stuck in bankruptcy.

A source familiar with the regulatory process predicted Berkshire Hathaway, with its light management touch on portfolio companies, will fare better than either the Hunt-led buyout deal or NextEra when the Oncor takeover comes up for regulatory review. The Hunt-led deal included too much financial engineering to suit Texas regulators, while NextEra was rejected for insisting on overriding much of the corporate ringfencing that protected Oncor.

Terry Hadley, spokesman for the Public Utility Commission of Texas, which was instrumental in blocking the two prior deals for Oncor, declined to comment.

Berkshire is familiar with Energy Future, having spent $2.1 billion in 2007 on high-yielding Energy Future Holdings Bonds. Berkshire sold the bonds in 2012 and lost $873 million pretax on the investment, Mr. Buffett said in his 2013 letter to shareholders.

"Most of you have never heard of Energy Future Holdings. Consider yourselves lucky; I certainly wish I hadn't," Mr. Buffett wrote in the letter.

Last year, Mr. Buffett closed his largest deal ever when he bought industrial company Precision Castparts Corp. for $32 billion. The billionaire investor also has joined forces with Brazilian private-equity firm 3G Capital Partners L.P. to help create a global food empire, merging Kraft and Heinz and attempting to buy consumer goods giant Unilever PLC. Last month, Berkshire made two smaller investments, rescuing struggling Canadian mortgage lender Home Capital Group Inc. and buying a stake in real-estate investment trust Store Capital Corp.

Berkshire Hathaway Energy's chief executive, Greg Abel, is considered to be a leading candidate to succeed Mr. Buffett as chief executive of the parent company.

Write to Dana Mattioli at dana.mattioli@wsj.com, Nicole Friedman at nicole.friedman@wsj.com and Peg Brickley at peg.brickley@wsj.com

(END) Dow Jones Newswires

July 06, 2017 15:47 ET (19:47 GMT)