Sempra Energy took a step forward Wednesday in its pursuit of Oncor, the electricity transmissions business that has had takeover offers from a series of suitors, including, most recently, Warren Buffett's Berkshire Hathaway Energy.
A bankruptcy judge signed off on Sempra's proposed acquisition, which still needs approval from the Public Utility Commission of Texas. State regulators have squashed two earlier attempted buyouts of Oncor, one of the largest electricity transmissions businesses in the country.
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Oncor is owned largely by Energy Future Holdings Corp., a Dallas power company that has been operating under bankruptcy protection since 2014. On Wednesday, Judge Christopher Sontchi authorized Energy Future to agree to sell its 80% stake in Oncor to Sempra.
Sempra's paying $9.45 billion for the Oncor stake, compared with the $9 billion offered by Berkshire Hathaway. Additionally, Sempra is in line for a $190 million breakup fee if the deal sours, compared with the $270 million breakup fee Berkshire was asking.
Sempra, of California, made its move on Oncor last month, days before the end of a go-shop period on the Berkshire Hathaway acquisition proposal.
Berkshire never got a chance to put its deal in front of Judge Sontchi, so it didn't qualify to collect the breakup fee that was part of that proposal. The night before a court hearing on the Berkshire proposal, Energy Future cut a new deal with Sempra, which owns San Diego Gas & Electric Co. and other companies.
Before its deal was scuttled, Mr. Buffett's energy company had already gained ground in Austin, reaching agreement with Texas regulatory staff and stakeholders over terms for the takeover.
The state PUC has protected Oncor zealously, concerned that avaricious owners might drain the company of the cash needed to meet power needs in Texas. Years ago, regulators established "ringfencing" provisions, corporate governance safeguards that protected Oncor from Energy Future's financial excesses. The ringfence kept Oncor out of bankruptcy, and regulators want to make sure the safeguards stay in place under a new owner.
Sempra has said it would meet the same regulatory commitments as Berkshire, with a few exceptions. Cash-rich Berkshire agreed to pay off all the debt sitting above Oncor. Sempra says it will pay down the debt over time.
Judge Sontchi also granted preliminary approval Wednesday to a chapter 11 emergence plan for Energy Future, which is counting on the money from the sale of Oncor to pay off its debts. Both crucial motions were easily approved in the U.S. Bankruptcy Court in Wilmington, Del., as a New York hedge fund that controls much of the debt in Energy Future's case, Elliott Management Corp., backs both the sale to Sempra and the chapter 11 plan.
Elliott had threatened to block the sale to Berkshire as an unwarranted bargain for Oncor, a profitable company positioned in a growing segment of the Texas energy grid. When Energy Future's energy-producing and energy-retailing segments foundered financially because of falling prices, Oncor's steady cash production made it the company's crown jewel.
Oncor's value became apparent months into Energy Future's bankruptcy, which began in April 2014. NextEra Energy Inc. made a play for the transmissions company, a move that helped upend Energy Future's restructuring strategy.
An investment group led by Texas' Hunt Consolidated Inc. was Energy Future's first choice as a buyer, but conditions regulators imposed on the deal caused investors to walk away. NextEra got its chance to try to buy Oncor, but regulators rejected the deal as not in the public interest.
NextEra's takeover proposal carried a $275 million breakup fee, which the Florida company is trying to collect.
Write to Peg Brickley at email@example.com
(END) Dow Jones Newswires
September 06, 2017 16:35 ET (20:35 GMT)
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