Elliott Moves to Block Berkshire's Oncor Bid; Buffett Stands Pat -- Update

By Dana Mattioli and David Benoit Features Dow Jones Newswires

Hedge fund Elliott Management Corp. has purchased a slice of debt that would ensure the hedge fund's ability to block Warren Buffett's deal to buy power-transmission business Oncor, according to people familiar with the matter.

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Elliott has been acquiring debt of Energy Future Holdings Corp., which owns Oncor, in recent months. The fund already owned a major position in the biggest block of debt and had argued it could block any deal, but the purchase of a different class from Fidelity Investments closes a potential loophole that Mr. Buffett's Berkshire Hathaway Inc. could have used to force the deal, the people said.

Berkshire, known for making acquisitions quickly and staying out of bidding wars, said Wednesday it was standing pat and wouldn't raise its more than $9 billion offer for Oncor. In a statement, the company emphasized support it has gotten from Texas stakeholders, saying it "sets our offer apart from any other bid." State regulators had squashed prior deals for Oncor.

"We stand ready to deliver on and exceed the regulatory commitments," said Greg Abel, the chief executive of Berkshire Hathaway Energy, the unit buying Oncor. Mr. Abel is also considered a leading candidate to succeed Mr. Buffett as CEO of Berkshire.

Elliott's newly acquired debt is in an impaired class of notes, meaning it won't be paid fully in the restructuring, and its approval is likely needed to get a deal done. Elliott now controls all the impaired classes and has notified the court it won't approve the Berkshire bid in its current form.

The move means the future of Berkshire's more than $9 billion deal for Energy Future, which would give it possession of Oncor, is teetering. In July, Berkshire Hathaway Energy struck the deal, which would be worth more than $17.5 billion including debt.

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Energy Future, formerly TXU, was the subject of the biggest leveraged buyout on record in 2007. Laden with debt, Energy Future filed for bankruptcy protection in 2014.

After the Berkshire deal was announced, Elliott publicly criticized its price and started to assemble a consortium of its own to restructure the company with a higher sale price. It is unclear where those efforts stand.

On Monday, Energy Future is due in court to seek approval to commit to selling Oncor to Berkshire Hathaway. The transaction includes a $270 million breakup fee. Elliott has objected to that fee, and asked the court to reject the Berkshire deal. In a court filing Wednesday, lawyers for Berkshire said Elliott has shown no proof it has committed financing for an alternative deal.

After that, Energy Future and Berkshire will have to seek approval from Texas regulators that killed two earlier deals for Oncor, and a chapter 11 plan must be approved by the bankruptcy court. The confirmation hearing is set for October.

Berkshire is the third would-be buyer for Oncor. Energy Future had been trying to sell its 80% stake in Oncor, but the regulators stymied attempts at deals by Hunt Consolidated Inc. of Texas and Florida's NextEra Energy Inc., leaving the company mired in bankruptcy. NextEra Energy had agreed to buy Oncor last year.

Texas regulators said the Hunt-led deal included too much financial engineering to suit them, while NextEra's deal was rejected for insisting on overriding many of the protections that prevented Energy Future from imposing excessive debt on Oncor, and guaranteed the unit kept a separate board of directors.

--Peg Brickley contributed to this article

(END) Dow Jones Newswires

August 16, 2017 21:51 ET (01:51 GMT)