NextEra’s $18 Billion Oncor Takeover Rejected by Texas

  • PUC had voiced concern about loss of ring-fencing measures
  • Second time deal to take over Texas utility has failed

NextEra Energy Inc.’s proposed $18.4 billion acquisition of Oncor Electric Delivery Co. , a sale that was key to ending the bankruptcy of Oncor parent Energy Future Holdings Corp., was rejected by utility regulators in Texas.

The Public Utility Commission of Texas voted against the deal at a meeting on Thursday. That followed a draft order on Wednesday showing the merger wouldn’t be in the public interest. Commissioners expressed concern last month about the loss of ring-fencing measures designed to protect Oncor’s credit rating.

After a previous takeover attempt from a group backed by Hunt Consolidated Inc. failed last year when Texas imposed conditions that the would-be buyer found too onerous, Oncor is now left seeking a new suitor again. Energy Future, created by the biggest leveraged buyout on record, sought court protection in 2014 to restructure almost $50 billion in debt. 

“They just joined a whole graveyard of failed utility mergers,” Paul Patterson, an analyst at Glenrock Associates LLC in New York, said by phone. “There’s still a lot of interest in Oncor but this does appear to make a buyout more difficult.”

Shares of NextEra fell as much as 0.4 percent before erasing losses. The stock is up 9.7 percent this year. Robert Gould, a spokesman for NextEra, declined to comment when reached by e-mail.

NextEra, owner of Florida’s largest utility, agreed to purchase Energy Future’s 80 percent stake in Oncor last year in a transaction that has been valued at more than $18 billion, including debt. A bankruptcy judge approved the sale of the Oncor unit in February.

Share Savings

The deal was opposed by Texas Industrial Energy Consumers, which made the same demands as during the earlier Hunt bid. The commission should require NextEra and Oncor to agree to share any savings from the deal with Oncor’s customers, the group said in a March 17 filing.

In the draft order, the commission’s staff cited “substantial amounts of leverage at NextEra” that would pose a financial risk to Oncor and few tangible benefits to customers. Particular issue was taken with “ring-fencing” measures that NextEra proposed to eliminate as part of the takeover to link its credit profile with Oncor’s.

One of those protections restricted NextEra’s ability to make changes to Oncor’s board, and the other gave Texas Transmission Investments shareholders the power to veto dividends declared by Oncor’s board and, in some situations, veto budgets. NextEra Energy has said that, if either measure remains, the two companies’ credit profiles can’t be linked and the merger can’t close.

It’s the second time in less than a year that NextEra has fallen foul of local regulators. In July, its $2.63 billion deal to acquire Hawaiian Electric Industries Inc. fell apart after the Hawaii Public Utilities Commission said the companies had failed to show it was in the public interest.

Oncor serves 10 million customers with the largest distribution and transmission system in Texas, made up of about 121,000 miles (195,000 kilometers).

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