Berkshire Trying Oncor Takeover in Texas Where Others Failed

  • Buffett’s firm makes all-cash offer for reorganized parent
  • NextEra, Hunt-led group have unsuccessfully attempted mergers

Berkshire After Buffett

Warren Buffett’s Berkshire Hathaway Inc. is trying for a utility takeover in Texas where energy giant NextEra Energy Inc. and the Hunt family have failed.

Berkshire Hathaway’s energy unit agreed to buy a reorganized Energy Future Holdings Corp., the parent company of Oncor Electric Delivery Co., Texas’s largest electricity-transmission operator, according to a statement issued Friday. The all-cash offer for Energy Future is $9 billion, implying an equity value of about $11.25 billion for 100 percent of Oncor, according to the statement.

Berkshire will be the third company to come before Texas regulators to ask for permission to buy a utility that they have so far highly guarded. Just a week ago, the state rejected NextEra’s $18 billion bid to buy Oncor for a third time, deciding the merger wasn’t in the public interest. Last year, it quashed an offer from Hunt Consolidated Inc.

Meanwhile, a takeover is key to ending the bankruptcy of Energy Future Holdings, formed by KKR & Co., TPG Capital and Goldman Sachs Capital Partners as part of the biggest leveraged buyout in history. The company’s been working since 2014 to restructure $50 billion of debt. 

The Berkshire deal, which is expected to be completed in the fourth quarter, is subject to closing conditions including state, federal and bankruptcy court approvals, according to the statement from both companies. Under the agreement, Bob Shapard will become Oncor executive chairman, while Allen Nye will be chief executive officer.

Berkshire has been able to “improve the operations of a couple of very large utilities that they’ve taken over while keeping rates relatively flat for customers,” Jim Shanahan, an analyst at Edward Jones, said, adding that regulators would “appreciate” the company’s ownership. He said Oncor “would have virtually unlimited capital” as part of Berkshire.

Utility Push

A Berkshire deal didn’t come as a surprise to analysts considering the company was among those identified as leading bidders for the utility last year. Buffett’s company has been pushing deeper into the utility industry over the past decade and a half, steadily acquiring power companies, pipelines and renewable energy projects in North America.

In 2013, Berkshire struck a $5.6 billion deal for Las Vegas-based electricity provider NV Energy Inc. Omaha, Nebraska-based Berkshire was able to gain approvals and finish the NV Energy takeover in less than seven months.

Buffett has said he likes owning utilities because they provide a way to invest billions of dollars at reasonable rates of return. The energy business doesn’t pay a dividend to Berkshire, which means the unit can use profit to upgrade infrastructure and buy other utilities.

$873 Million Loss

Buffett, 86, is no stranger to Energy Future.

Another one of the company’s subsidiaries, Texas Competitive Electric Holdings, was the source of one of Buffett’s biggest investment losses. Berkshire bought about $2 billion worth of bonds tied to the company in 2007 and then wrote them down after natural-gas prices plunged, hurting the utility’s ability to service its debt. Buffett sold the securities in 2013, locking in an $873 million pretax loss, and called the bet a “big mistake.”

In denying NextEra’s bid for Oncor, the Public Utility Commission of Texas expressed repeated concerns about the company’s refusal to agree to ring-fencing measures designed to protect Oncor’s credit rating and preserve control of the company’s board. Last year, the Hunt-led group pulled out of a deal to purchase Oncor after the same commission signaled that it may have to share future tax savings arising from the deal with ratepayers.

“Warren Buffett seems to have a halo around him that would allow him some deference compared to other investors,” said Paul Patterson, a utilities analyst at Glenrock Associates LLC in New York. Buffett is a “significant utility player, but of course the devil will be in the details.”

— With assistance by Jim Polson, Dan Reichl, and Christine Buurma

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