Sempra to buy 80% of Oncor in $18.8bn deal

The utilities holding company outbid Berkshire Hathaway for the majority of the Texas electricity company, agreeing to pay $9.5bn in cash.

Sempra Energy has agreed to buy the majority of Texas’s largest electricity transmission and distribution company, paying $9.45 billion in cash for Energy Future Holdings, which owns an 80 percent share of Oncor.

San-Diego-based Sempra will also assume more than $9 billion in Oncor debt, bringing the transaction’s enterprise value to around $18.8 billion. The firm outbid Berkshire Hathaway, a Nebraska-based conglomerate led by Warren Buffett. Last month, Buffett’s firm reached a $9 billion merger agreement to acquire the energy company, which filed for bankruptcy in 2014.

Energy Future Holdings is mostly owned by funds managed by KKR, TPG Global and GS Capital Partners, an affiliate of Goldman Sachs. Texas Transmission Investment, owned by a consortium of three private equity investors, holds 19.75 percent of Oncor with the remainder owned by Oncor’s management.

The deal is subject to approval from several regulators including the Federal Energy Regulatory Commission, the Public Utility Commission of Texas and the US Bankruptcy Court of Delaware. In June, PUCT rejected an $18.7 billion offer by Florida-based NextEra Energy to buy Oncor, saying it was not in the public’s interest. Previously, in March 2016, an attempt by Texas-based Hunt Consolidated to buy Energy Future Holdings in a deal worth close to $18 billion was tripped up by PUCT.

Sempra plans to fund the deal through a combination of its own debt and equity and third-party equity along with $3 billion of investment-grade debt. The firm said it has received financial commitments from RBC Capital Markets and Morgan Stanley and expects to hold an approximately 60 percent equity share of the company after the transaction. Sempra also expects the deal to improve Oncor’s credit rating.

“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 US Bankruptcy Court,” said Sempra chief executive Debra Reed.

The deal should be completed in the first half of 2018, Sempra said.

The reorganisation of the company will see Oncor chief executive Bob Shapard become executive chairman of the board of directors and Oncor general counsel Allen Nye take over as chief executive.