Energy Future inks $9.45 billion sale deal, ends Berkshire agreement

By Caroline Salls

Pittsburgh, Aug. 21 – Energy Future Holdings Corp. reached an agreement to sell the company and its 80% stake in Oncor Electric Delivery Co., LLC to Sempra Energy for $9.45 billion, according to a Sempra news release.

Sempra said the enterprise value of the transaction is $18.8 billion, including the assumption of Oncor’s debt.

“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,” Sempra chairman, president and chief executive officer Debra L. Reed said in the release.

“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.

“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.”

Sempra said 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.

According to the release, Sempra has received financing commitments from RBC Capital Markets LLC and Morgan Stanley.

Sempra said it expects its equity ownership after the transaction to be about 60% of the reorganized holding company.

Oncor improvements

As a result of the transaction, Sempra said Oncor’s underlying financial strength and credit ratings are expected to improve.

Sempra will also maintain the existing independence of Oncor’s board of directors, which has protected Oncor and its customers during the ongoing Energy Future bankruptcy, the release said.

“It is important for Oncor to remain financially strong,” Reed said in the release. “Our proposal will help bring a satisfactory resolution to Energy Future’s bankruptcy case, keep Oncor financially strong, and protect Oncor customers, while addressing the needs of Texas regulators, creditors and the U.S. Bankruptcy Court.”

As part of the transaction, Sempra said it committed to support Oncor’s plan to invest $7.5 billion of capital over a five-year period to expand and reinforce its transmission and distribution network.

New board

At the completion of the transaction, Bob Shapard, Oncor’s CEO, will become executive chairman of the Oncor board of directors and Allen Nye, currently Oncor’s general counsel, will succeed Shapard as Oncor’s CEO.

Both Shapard and Nye are slated to serve on the Oncor board, which will consist of 13 directors, including seven independent directors from Texas, two from existing equityholders and two from the new Sempra-led holding company.

The transaction is subject to the approval of the Public Utility Commission of Texas, the U.S. Bankruptcy Court for the District of Delaware, Federal Energy Regulatory Commission and the Department of Justice under the Hart-Scott-Rodino Act.

The transaction is expected to be completed in the first half of 2018.

Berkshire Hathaway responds

In a separate news release, Berkshire Hathaway Energy Co. announced that its proposal to acquire Energy Future and its interest in Oncor was terminated by Energy Future.

Last month, Berkshire announced that it agreed to pay $9 billion for Energy Future, implying an equity value of $11.25 billion for 100% of Oncor.

“We are disappointed our agreement to acquire Oncor has been terminated,” Berkshire Hathaway chairman, president and CEO Greg Abel said in the Berkshire release.

Through the agreed upon 47 regulatory commitments, Berkshire said Texas stakeholders focused on protecting Oncor from unnecessary risk, including having no debt at intermediate holding companies. The regulatory commitments were included in an agreement that was signed by five significant parties that supported the proposal.

“Texas is a great state for business, and we look forward to future opportunities to invest,” Abel added in the release.

NextEra deal failure

As previously reported, NextEra Energy, Inc.’s application for approval for the acquisition of the equity interests in Oncor was denied by the Public Utility Commission of Texas.

Specifically, NextEra sought approval of the commission to acquire the 80% interest in Oncor indirectly held by Energy Future, as well as the 19.75% interest held by Texas Transmission Holdings Corp. NextEra also agreed to purchase a 0.22% interest in Oncor held by Oncor Management Investment LLC.

The NextEra transaction was part of Energy Future’s eighth amended plan of reorganization, which was confirmed on Feb. 17.

Energy Future is a Dallas-based power generation company and utility operator. The company filed for bankruptcy on April 29, 2014. The Chapter 11 case number is 14-10979.

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