By Rory D. Sweeney
WILMINGTON, Del. — Sempra Energy moved a step closer to acquiring Texas utility Oncor after a U.S. bankruptcy judge on Wednesday approved the $9.45 billion agreement (14-10979).
The deal would give Sempra an 80% stake in the rate-regulated operations of the largest transmission and distribution utility in Texas. The deal must still be approved by the Public Utility Commission of Texas.
The utility has been the subject of a series of failed takeover bids since parent Energy Future Holdings, saddled with almost $50 billion in debt after poor bets on energy prices, declared bankruptcy in April 2014.
EFH announced the deal with Sempra three weeks ago in the same Delaware courtroom, after hedge fund Elliott Capital Management — the largest holder of EFH bonds — opposed as too low a $9 billion all-cash offer by Berkshire Hathaway Energy. Including debt, Berkshire’s bid valued Oncor at $18 billion, while Sempra’s values the utility at $18.8 billion. (See Sempra Outmuscles Berkshire for Oncor.)
‘Largely Consensual’
“Unlike any proposal we’ve had in the past, this proposal has the support of one of the debtors’ largest and most active creditors,” Chad Husnick, an attorney representing EFH, told Judge Christopher Sontchi. “The Sempra transaction is the highest and best available transaction.”
Husnick said the Sempra deal was “largely consensual” and prompted just one objection regarding how creditors would be compensated, a consideration that Sontchi said should be reserved for a confirmation hearing. That hearing would take place after the PUCT approves the deal.
“We’ll try it again,” Sontchi said in approving the documents, drawing laughter from the courtroom.
Sempra said it is committed to ensuring that Oncor remains independent, financially strong and based in Dallas with local management.
“Oncor is a well-managed, top-tier utility, operating in one of the strongest U.S. growth markets. We believe it will be an excellent strategic fit with our portfolio of utility and energy infrastructure businesses, while opening up a new avenue for our long-term growth,” Sempra CEO Debra Reed said in a statement after the hearing.
The acquisition would allow Sempra to regain a foothold in Texas, where it once owned and operated 10 power plants and still maintains a 200-person Houston office to support marketing and development activities. (See Sempra Begins ‘Listening Tour’ of Key Stakeholders.)
With the approval in hand, EFH set an Oct. 30 voting deadline for its plan. EFH approved the deal in part because Sempra was willing to accept ring-fencing of Oncor — giving it independence from its corporate parent — and no assurance that it will get control of the 20% of Oncor now owned by Texas Transmission Holdings Corp.
Sempra is the fourth would-be suitor for Oncor. Dallas’ Hunt Consolidated and Florida-based NextEra Energy saw separate bids fall apart in the face of the Texas PUC’s calls for strict ring-fencing measures and a requirement that Oncor be run by a “truly independent” board with control over decisions on capital expenditures and operating expenses.
NextEra Termination Fee Battle
Wednesday’s hearing also addressed EFH’s upcoming legal battle with NextEra, which had offered $18.7 billion for Oncor but failed to win approval for the deal from the PUCT. EFH accused NextEra of failing to do its best to receive approval and sued the former suitor earlier this year to prevent any attempt by NextEra to claim the deal’s $275 million termination fee. The trial is set to begin next April.
EFH filed for Chapter 11 protection in 2014 with roughly $42 billion in debt, which was then the eighth-largest bankruptcy in U.S. history. About $25 billion of the debt has been restructured by spinning off subsidiary Texas Competitive Electric Holdings, which split the company in half.