While Elliott Management tries to cobble together enough money to beat Berkshire Hathaway’s $9 billion bid to buy one of America’s largest transmission operators, it has another problem to deal with: the state of Texas.
The New York hedge fund run by billionaire Paul Singer is trying to convince Texas stakeholders that its deal to buy the big Dallas power distributor, Oncor Electric Delivery, will be superior to Berkshire’s. Representatives of Elliott have spent a week and a half in Texas meeting with groups including the state’s Public Utility Commission, the regulatory body that must approve a deal, according to people familiar with the situation, who asked not to be identified because the meetings aren’t public.
Elliott needs to win over members of the PUC, which will probably take a formal recommendation from the agency’s staff.
And despite meetings with the fund, a state official said the commission remains concerned with Elliott’s plan because it lacks detail, including the identity of the investors that would ultimately own Oncor.
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In a letter disclosed last week, Brian Lloyd, the commission’s executive director, said “key details” remain missing from Elliott’s proposal. He also said Elliott had wrongly told a lawyer that the commission would accept its plan once the terms were laid out in a formal agreement when “no such advisement occurred.”
Elliott and Berkshire Hathaway’s energy unit declined to comment. Terry Hadley, a PUC spokesman, said “nothing much has changed” since Lloyd’s letter.
The sale of Oncor is key to ending the high-profile bankruptcy of the utility’s parent, Energy Future Holdings, which has been working to restructure $50 billion of debt since 2014.
The spat between Elliott and Warren Buffett’s Berkshire threatens to keep it in Chapter 11 for longer. Texas regulators have already quashed two bids for Oncor by Florida-based NextEra Energy and a group led by Hunt, Consolidated of Dallas.
“It’s all and well to say, ‘We’re going to come up with a better proposal,’ but there are two masters to serve here,” said Paul Patterson, a utilities analyst at Glenrock Associates in New York.
“One is the bankruptcy court and the other is the Texas PUC, and the Texas PUC has been the one that has basically knocked down” previous attempts.
Meanwhile, Berkshire has already laid the groundwork for its case before the PUC.
Hours after announcing its deal to buy Oncor this month, Berkshire committed to more than 40 measures that, it said, would shield Oncor from potential bankruptcy at other units and protect an independent board with sole authority over the company’s dividends — two provisions the agency has laid out as conditions for a takeover.
Lloyd issued a statement early this month applauding Berkshire’s “productive efforts.” The commission’s staff, the state’s advocate for utility customers, a steering committee of cities served by Oncor and a group of industrial customers have all signed a document laying out the commitments Berkshire made, supporting approval of the deal.
For its part, Elliott has assured Texas stakeholders in meetings that the hedge fund is willing to meet or exceed the commitments Berkshire has made, people familiar with the conversations said.
The activist investment firm, the largest creditor to Oncor’s bankrupt parent, has also made clear that it isn’t just trying to get a better offer out of Berkshire to collect a bigger payout as a debtor. The fund is after an equity stake in Oncor, the people said.
Elliott got a partial victory earlier this week when a Delaware judge granted an 11-day extension before the bankruptcy court will consider Berkshire’s bid, now set for Aug. 21. Elliott has conveyed confidence that it can raise the necessary funds within that time even though it was originally seeking an extension to mid-September, said the people.
Elliott has been marketing its deal as better than Berkshire’s because Oncor would have multiple owners as opposed to just one, offering a checks-and-balances system that would hold the company accountable to more than one stakeholder, according to the people.
The fund is looking to pull together a bid that would preserve a 20 percent position held by Borealis Infrastructure Management and GIC Private Limited, with the rest of the company proposed to be owned by Elliott and other investors, they said.
Lining up investors
Elliott said in court Wednesday that it’s working on rounding up investors who may be willing to help finance a $9.3 billion competing bid that would include $3.7 billion in debt and $5.6 billion in equity.
The fund has already agreed to provide $1.1 billion and another creditor has pledged $400 million, said Roger Wood, a managing director at Moelis & Co., which is advising the company on its bid.
Berkshire has offered an all-cash deal.
Wood said five to 10 investment groups would probably need to participate in Elliott’s bid. And to bolster its case with Texas regulators, the fund is looking for investors in the state to back the offer, he said.
Oncor has, meanwhile, maintained that Berkshire’s offer is still the best it has seen so far. The company is waiting to see if Elliott is able to pull together a rival deal, Geoff Bailey, director of communications at Oncor, said Thursday.
Without a formal Elliott bid on the table, Patterson said, “It’s unclear to me what the reception will be.”