Sempra to buy EFH; Berkshire Hathaway Energy proposal ends
'We are disappointed our agreement to acquire Oncor has been terminated'
In separate Aug. 21 statements, Sempra Energy announced an agreement to acquire Energy Future Holdings Corp., the indirect owner of 80 percent of Oncor Electric Delivery Co., while Berkshire Hathaway Energy said that its proposal to acquire EFH and its interest in Oncor has been terminated by EFH.
In its statement, Berkshire Hathaway Energy said that through 47 agreed upon regulatory commitments, which the company noted were included in an agreement that was signed by five parties that supported the proposal, Texas stakeholders have rightly focused on protecting Oncor from unnecessary risk, including having no debt at intermediate holding companies, Berkshire Hathaway Energy said.
Greg Abel, chairman, president and CEO, of Berkshire Hathaway Energy, said in the statement, in part: “We are disappointed our agreement to acquire Oncor has been terminated. We are extremely grateful for the strong support and extraordinary backing from all of the stakeholders in Texas.”
Berkshire Hathaway Energy in an Aug. 18 statement had announced that the staff of the Public Utility Commission (PUC) of Texas, Office of Public Utility Counsel, Steering Committee of Cities Served by Oncor, the Texas Industrial Energy Consumers and the IBEW Local 69 entered into a settlement agreement with Berkshire Hathaway Energy, resolving all issues in Berkshire Hathaway Energy’s proposed acquisition of Oncor.
In that statement, Abel said, in part: “This show of support is extraordinary. Our financial strength and commitment to invest in the business will serve Oncor and its customers well and we will exceed their expectations. Our deal offers a great outcome for Texas.”
By entering into the settlement, the parties agreed that the acquisition is in the public interest, meets the statutory standards and will bring substantial benefits to Oncor and its customers, Berkshire Hathaway Energy said on Aug. 18. The parties asked the PUC to approve the acquisition consistent with the enhanced commitments in the agreement, Berkshire Hathaway Energy, a subsidiary of Berkshire Hathaway Inc., added.
In its statement, Sempra noted that under the agreement to acquire EFH, Sempra would pay about $9.45bn in cash to acquire EFH and its ownership in Oncor, while taking a major step forward in resolving EFH’s long-running bankruptcy case.
The enterprise value of the transaction is about $18.8 billion, including the assumption of Oncor's debt, Sempra said, adding that the transaction is expected to be accretive to Sempra’s earnings beginning in 2018.
Sempra said that it expects to fund the $9.45 billion transaction using a combination of its own debt and equity, third-party equity, and $3 billion of expected investment-grade debt at the reorganized holding company. Sempra added that it has received financing commitments from RBC Capital Markets and Morgan Stanley. Sempra noted that it expects its equity ownership after the transaction to be about 60 percent of the reorganized holding company.
As a result of the transaction, it is anticipated that Oncor's underlying financial strength and credit ratings will improve, Sempra said, adding that Sempra will maintain the existing independence of Oncor's board of directors.
As part of the transaction, Sempra said that it has committed to support Oncor's plan to invest $7.5bn of capital over a five-year period to expand and reinforce its transmission and distribution network.
At the completion of the transaction, Bob Shapard, Oncor's CEO, would become executive chairman of the Oncor board of directors and Allen Nye, currently Oncor's general counsel, would succeed Shapard as Oncor's CEO, Sempra said. Both are slated to serve on the Oncor board, which would consist of 13 directors, including seven independent directors from Texas, two from existing equity holders and two from the new Sempra-led holding company, Sempra said.
The transaction is subject to customary closing conditions, including the approval of the PUC, U.S. Bankruptcy Court of Delaware, FERC, and the U.S. Department of Justice under the Hart-Scott-Rodino Act, Sempra said.
Sempra noted that it expects the transaction to be completed in the first half of 2018. Lazard and Morgan Stanley are acting as financial advisors to Sempra and, White & Case LLP, as legal advisor.
Debra L. Reed, chairman, president and CEO of Sempra, said in the statement, in part: “With its strong management team and long, distinguished history as Texas' leading electric provider, Oncor is an excellent strategic fit for our portfolio of utility and energy infrastructure businesses. We believe our agreement with Energy Future will help ensure that Texas utility customers continue to receive the outstanding electric service they have come to expect from Oncor and provide stability to Oncor's nearly 4,000 employees."
Reed continued, "For investors, this transaction is expected to enhance our earnings beginning in 2018 and further expand our regulated earnings base, while serving as a platform for future growth in the Texas energy market and U.S. Gulf Coast region."