Berkshire Hathaway Attempts Takeover of Oncor
Berkshire Hathaway Inc. owned by Warren Buffett is attempting to takeover a utility in Texas were NextEra Energy Inc. the energy giant and Hunts have failed.
The energy unit at Berkshire Hathaway agreed to acquire reorganized Energy Future Holdings Corp, the Oncor Electric Delivery Company parent, the largest Texas electricity transmission operator, said a statement issued on Friday.
The offer of all cash to acquire Energy Future is $9 billion which implies an equity value for 100% of Oncor of $11.25 billion, said the statement.
Berkshire is the third company that will come before regulators in Texas to ask permission to purchase a utility they have highly guarded to date.
Only last week, the state rejected a bid of $18 billion by NextEra to acquire Oncor for the third time, deciding that the merger was not in the best interest of the public. In 2016, regulators quashed the offer made by Hunt Consolidated Inc.
At the same time, a takeover is the key to ending Energy Future Holdings’ bankruptcy. The company has worked for almost 3 years since to restructure debt of $50 billion.
The deal offered by Berkshire, which should be completed during the 2017 fourth quarter, has closing conditions that include approvals from bankruptcy court, state and federal authorities, showed a statement that was released by the two companies.
Under their agreement, the executive chairman of Oncor will be Bob Shapard, while the CEO will be Allen Nye.
Berkshire has been successful in improving operations at a few large utilities that the company has taken over while at the same time maintaining rates generally flat for their customers, said an industry analyst on Wall Street.
He added that regulators would be appreciative of the ownership of the company and said that Oncor would have capital that was virtually unlimited.
The deal by Berkshire was not a surprise to most analysts considering Berkshire was amongst those that were identified as leading bidders in 2016 for the utility.
Buffett’s company pushed deeper into the industry the last 15 years by steadily acquiring projects across North America including power companies, renewable energy and pipelines.
During 2013, Berkshire entered into a deal for $5.6 billion to acquire NV Energy Inc. based in Las Vegas and gained approvals and completed the takeover in just over six months.
The energy business does not pay any dividend to Berkshire which gives it the ability to use profit as a way to upgrade infrastructure and buy more utilities.