Hedge fund may try to upend Buffett’s bid for Oncor Electric

Berkshire Hathaway’s bid for Oncor Electric Delivery is about $300 million less than what Elliott Management wants, as the two investors fight over the value of the Dallas-based power company.

Berkshire’s agreement to buy the utility values it at about $18.2 billion, Oncor CEO Robert Shapard said in an interview Tuesday. Activist investor Elliott Management is unhappy with the terms of the deal and is proposing a restructuring that values Oncor at $18.5 billion, according to a letter released Tuesday.

Suitors have been lining up for a chance to buy Oncor since 2014, when its parent, Energy Future Holdings, filed for Chapter 11. The takeover is key to ending the bankruptcy.

Berkshire must still gain the approval of Texas regulators, who’ve already rebuffed two prior attempts by NextEra Energy and Hunt Consolidated to buy the utility.

“I think we’re a great fit for him and they want to own this company,” Shapard said of Berkshire Chairman and CEO Warren Buffett in an interview on Bloomberg Television.

“We’ve seen no details” about Elliott’s proposal, said Shapard, adding that he met with representatives of the New York-based hedge fund Monday. “At this point, we’re full speed ahead on the Berkshire deal.”

Asked whether he thought Berkshire would raise its bid, Shapard said: “I haven’t got a clue.” The bankruptcy judge reviewing the deal would have to consider not only price but certainty, he said.

“What an Elliott would have to do is not only show they have superior value, but they can get a deal closed,” Shapard said.

Elliott, founded by billionaire investor Paul Singer, said it holds 74 percent of the debt in Energy Future. Elliott may use its rights as a debt-holder to block approval of the Berkshire deal in bankruptcy court. The fund said in a July 5 letter that the offer fails to maximize value for creditors.

‘Entirely supportive’

Elliott said in the letter released Monday that it is “entirely supportive” of a deal with Berkshire or another buyer so long as the value of the transaction exceeds its own estimate.

Berkshire wasted no time trying to win over Texas regulators. The company has made more than 40 commitments, promising to preserve “ring-fencing” measures that would protect Oncor’s independent board and its right to determine dividends. Two prior bidders had rejected ring-fencing, leading the state Public Utility Commission to reject the offers, Shapard said.

“They actually went to Texas first, and that was the distinction,” Shapard said. “Berkshire Hathaway actually worked with the state of Texas and said ‘We’ll do it your way.’” Elliott said Tuesday it has also agreed to ring-fencing.

In January, Elliott disclosed a partnership with Bluescape Resources, led by C. John Wilder, that took an activist stake in U.S. power generator NRG Energy. Perhaps not coincidentally, Wilder was chief executive officer of TXU Corp. when KKR, TPG Capital and Goldman Sachs pulled off the biggest leveraged buyout in history and renamed the company Energy Future Holdings.

That connection could make Texas regulators hesitant about entertaining a bid involving Elliott, according to Bloomberg Intelligence utilities analyst Stacy Nemeroff.

The Berkshire deal didn’t come as a complete surprise to analysts considering the company was among those identified as leading bidders for Oncor last year. Buffett’s company has also 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 takeover in less than seven months.

Buffett, 86, is also 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.”

This story was originally published July 11, 2017 at 2:18 PM with the headline "Hedge fund may try to upend Buffett’s bid for Oncor Electric."