Third Bidder Emerges for Energy Future's Oncor -- 4th Update

By David Benoit, Dana Mattioli and Nicole Friedman Features Dow Jones Newswires

Warren Buffett's battle for control of a Texas power company took a turn Friday as a new mystery bidder emerged to challenge Berkshire Hathaway Inc.'s $9 billion offer.

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The bidder is the third entity currently seeking to buy Oncor, a Texas-based power-transmission company. Mr. Buffett's bid is also being challenged by hedge fund Elliott Management Corp., a big debtholder of Energy Future Holdings Corp., the bankrupt firm that owns most of Oncor.

The bidder's existence materialized in a late-scheduled hearing in bankruptcy court in Wilmington, Del., but its identity wasn't revealed. Keith Wofford, lawyer for Elliott, identified the new contender at the hearing as "a large investment grade utility."

The energy unit of Berkshire struck a deal to buy Oncor for $9 billion in cash last month. The move would further cement electricity as one of the conglomerate's largest businesses and partly satiate Mr. Buffett's desire to spend some of Berkshire's $99.7 billion of cash on acquisitions.

But Elliott, which is run by billionaire Paul Singer, was assembling a deal of its own that it says would be worth hundreds of millions of dollars more for creditors. The details of where that bid stands are unknown.

Mr. Wofford, the Elliott lawyer, said at the hearing that on Wednesday, Energy Future called Elliott to test its reaction to a "firm bid for $9.3 billion that has emerged."

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At the time, he said, Energy Future was considering breaking from the Berkshire agreement, to pursue talks with the new contender.

Energy Future lawyer Mark McKane said at the hearing on Friday that the company's board is still considering the potential deal, as well as amendments to the Berkshire deal. The board met Friday and will meet again Sunday, he said.

"We are still evaluating the situation, but no decisions have been made, " Mr. McKane said.

Elliott has amassed the largest position in Energy Future's debt and this week strategically bought a certain slice of notes that would ensure its ability to block a deal, people familiar with the matter said.

On Wednesday after the Elliott move, Mr. Buffett did what he usually does when confronted with tumult in his deal making process: He stood pat.

Berkshire issued a statement that said it wouldn't be raising its bid for Oncor. Mr. Buffett, Berkshire's chairman and chief executive, has a history of sticking to his initial offer: "I'm a 'one-price' guy," he wrote in a 2007 letter to shareholders.

Berkshire also has said it would walk away if its buyout offer wasn't approved in court next week.

Now, with the emergence of a third bidder, it is possible neither Mr. Buffett nor Mr. Singer will emerge with Oncor, though Berkshire still stands to reap a paycheck if the deal is squashed. As part of the deal, it would receive a breakup fee of $270 million, though that fee would have to be approved by the bankruptcy court.

Berkshire has earned breakup fees from failed deals in the past, including $175 million after it withdrew its offer to buy Constellation Energy Group Inc. in 2008.

But a $270 million consolation prize would only add to Berkshire's swollen cash coffers, which are approaching $100 billion. Berkshire has made some smaller investments in recent months and expanded its large stake in Apple Inc. But it hasn't done a megadeal since August 2015, when it announced its purchase of Precision Castparts Corp. for more than $32 billion, its biggest acquisition ever.

"The question is, are we going to be able to deploy it?" Mr. Buffett said of Berkshire's cash holdings at the company's annual meeting in May. "At a point the burden of proof really shifts to us, big time. And there's no way I can come back here three years from now and tell you that we hold $150 billion or so in cash or more, and we think we're doing something brilliant by doing it."

Kraft Heinz Co., which is partly owned by Berkshire and Brazilian private-equity firm 3G Capital, made a $143 billion approach to take over Unilever PLC in February but backed away after Unilever declined. Berkshire would have invested $15 billion if the deal were reached, Mr. Buffett said at the annual meeting.

A new offer for Oncor would be the latest twist in the long-running saga of the fate of Energy Future, formerly known as TXU, which has been under chapter 11 bankruptcy protection since 2014. The news of the new bidder came out as Elliott was attempting to learn more about the bid in its efforts to block the Berkshire deal.

Elliott's purchase of more debt caught some Oncor customers and stakeholders who were following the case by surprise, a person familiar with the matter said.

The fight for Oncor could come to a head on Monday, as a judge is scheduled to decide whether to green light Berkshire's $9 billion takeover offer.

Groups of major Oncor customers and other market participants have publicly supported Berkshire's bid. Late Friday, five stakeholder groups announced an agreement with Berkshire that "resolves all issues" and asked Texas regulators to approve the deal, Berkshire said in a news release.

With potential other bids, said Geoffrey Gay, counsel for a coalition of cities served by Oncor, "I can't put my clients' name on any document, like we did with Berkshire, without knowing who we're going to be dealing with."

Obtaining regulatory clearance will be key to any successful bid. Two earlier attempts to sell Oncor -- to Hunt Consolidated Inc. of Texas and Florida's NextEra Energy Inc. -- foundered due to action by Texas energy regulators. With money running short, Energy Future can't afford another failed deal for the business, its crown jewel.

Regulators have heard little from bidders besides Berkshire, said Brian Lloyd, the executive director of the Texas Public Utility Commission, at a meeting in Austin, Texas, on Thursday.

"There have been plenty of meetings, but at this point that list of details as to ... who the investors are, what the debt levels are, what the governance rights are, we have not received a complete list of those things," he said. "Some of the details we have received, I think, in many of the parties' minds will raise some questions."

If Berkshire's bid succeeds, Oncor would become part of Berkshire Hathaway Energy, a collection of energy and utility businesses run by 55-year-old Greg Abel. Mr. Abel, who became chief executive of the energy subsidiary in 2008, is widely considered one of the top candidates to succeed Mr. Buffett as chief executive of Berkshire.

If Mr. Buffett loses the deal, it wouldn't be the first time his attempts to wade into Energy Future didn't go his way. Berkshire spent $2.1 billion in 2007 on high-yielding Energy Future Holdings bonds. It sold the bonds in 2013 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," he wrote in the letter. In a prior letter, he said he had "totally miscalculated the gain/loss probabilities when I purchased the bonds."

--Peg Brickley contributed to this article.

Write to David Benoit at david.benoit@wsj.com, Dana Mattioli at dana.mattioli@wsj.com and Nicole Friedman at nicole.friedman@wsj.com

(END) Dow Jones Newswires

August 18, 2017 19:33 ET (23:33 GMT)