Sempra Falls on Plan to Issue More Equity to Get Oncor Approved

Updated on
  • Sempra will issue about $6 billion in equity in new terms
  • Earlier bids for Oncor were thwarted by Texas regulators

Sempra Energy tumbled after saying it would issue more equity instead of bringing in outside investors to help fund its $9.45 billion takeover of Oncor Electric Delivery Co., in an attempt to appease Texas regulators.

Shares fell as much as 2.9 percent, the most since December 2016, after Sempra said late Wednesday it would buy all of Energy Future Holdings Corp., the parent of Texas power-line utility Oncor. The revised terms will eliminate $3 billion of debt at Energy Future.

“A bitter pill to swallow any way you look at it” for shareholders, Shahriar Pourreza, a utility analyst at Guggenheim Securities, said in a research note.

Sempra will file for approval from the Public Utility Commission of Texas on Thursday, a key step in getting the deal cleared. Texas regulators have quashed earlier takeover bids from NextEra Energy Inc. and a group led by Hunt Consolidated Inc. The sale is key to ending the bankruptcy of Energy Future, which has been restructuring nearly $50 billion of debt for more than three years.

Sempra Chief Executive Officer Debra Reed said Wednesday on a conference call that the company decided to change the terms of its financing after getting feedback from Texas stakeholders, whose support is needed to get the deal approved.

“One of their greatest concerns was the holding company debt, and so we felt we could address those issues upfront and that would allow us to improve our chances to get regulatory approval,” she said.

Sempra said it will fund its purchase with 65 percent of equity and 35 percent with debt. The new terms will improve the company’s long-term credit profile and result in a four-year average annual earnings-per-share boost of 10 cents to 20 cents, Chief Financial Officer Jeffrey Martin said during the call. Energy Future owns an 80 percent interest in Oncor.

“Sempra is taking steps to address potential issues that may concern various parties in Texas," Paul Patterson, an analyst at Glenrock Associates LLC, said by phone Wednesday.

The acquisition will be Sempra’s largest since it was formed in 1998, based on data compiled by Bloomberg. The deal would expand its U.S. utility territory beyond California, where it owns natural gas and electric distribution utilities.

The San Diego-based company topped an offer by Warren Buffett’s Berkshire Hathaway Inc. to clinch Oncor in August. The biggest power-line operator in Texas promises to provide Sempra with a steady stream of earnings in a high-growth state.

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