Sempra Energy Acquires Oncor For $9.45 Billion

U.S. Utility Firm Sempra Energy recently announced the acquisition of Oncor Electric Delivery Co, a Texas power distributor for $9.45 billion, beating out a bid by Warren Buffett’s Berkshire Hathaway Inc.

Sempra said that it will be funding the deal with a combination of own debt and equity along with $3 billion of borrowing and third-party equity.

Oncor has been the target of multiple bids after Energy Future declared bankruptcy in 2014. Berkshire recently submitted a bid for Oncor valued at $9 billion which was topped by a rival offer of $9.3 billion by the hedge fund Elliott Management Corp.

Elliot had strongly objected to the Berkshire bid pointing out that the company’s creditors would barely recover anything under it. The hedge fund owned by billionaire investor Paul Singer is one of the largest debtholders of Energy Future. Elliott supported Sempra’s bid noting that it offered the potential for better recovery for all Energy Future creditors than the offer from Berkshire.

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Sources have claimed that Sempra had been working on its bid even as the public battle between Berkshire Hathaway and Elliot continued. The company’s bid was helped by Elliott’s decision to buy nearly$60 million worth of unsecured debt of Energy Future which was needed to block the Berkshire bid.

This is Sempra’s largest acquisition till date. Under the Sempra deal, Elliott would be able to recover nearly 45 to 50 cents on the dollar as opposed to the 18 cents under the Berkshire bid. Sempra has said that it will be retaining the independence of Oncor’s board of directors. Sempra operates power and gas utilities in Southern California as well as in South American countries of Chile and Peru. The company also owns other energy assets including renewable energy capacity and a liquefied natural gas export terminal project. The Sempra bid still needs to gain approval from the bankruptcy court and from the two Texas PUC commissioners in addition to other regulatory approvals. Texas regulators have rejected two previous deals.

In a statement Paul Patterson, a utilities analyst at Glenrock Associates LLC said,

It’s not just a question of what you’re offering — it’s a question of whether or not it’s going to make Texas regulators feel comfortable enough to allow the deal. And we’ve already seen two fail in this situation

U.S. Bankruptcy Judge Christopher Sontchi will be holding a hearing on Sept. 6 to review the merger agreement.

Chad Simmons

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