BRK: Oncor Acquisition

[Guest longinvestor]

Reuters : Elliot says considering a USD 18.5 B deal for Oncor.

 

This will be interesting to follow going forward.

 

It appears to me that this is an attempt by Elliott to make Berkshire to cough up a bit more. There's been a lot of legal and frictional costs from 4 years of BK. Trying to write off less and eyeing deep pockets. Typical of lawsuits. We will see who eats it.

[james22]

Someone here knows how rate regulation works in a case like Oncor, allowed returns, methodology, etc?

Don't know the particulars for Oncor in Texas, but for transmission assets in the US they're generally allowed 12% ROE on a capital structure that's about 1/3 equity, 2/3 debt.

 

From a 2014 article:

 

Currently, Texas regulators allow a 10% return on equity and are likely to approve the $1 billion per year capital spending program Oncor has proposed for new infrastructure to help meet Texas’ rising electricity demand.

 

http://www.utilitydive.com/news/which-utility-will-warren-buffett-buy-next/265887/

[villainx]

Trying to understand what's going on, Elliott is trying to get the bid $300 million higher?  This amount seems to barely move the needle, especially with the % that would go to the hedge fund. 

[John Hjorth]

SA: Berkshire moves quickly on regulatory approval for Oncor.

 

Expected.

[Guest longinvestor]

http://www.houstonchronicle.com/business/columnists/tomlinson/article/Texans-should-cheer-for-Buffett-in-battle-for-11278316.php

 

Let's see if Elliott is smart enough to not get into this fight between Main street Texas and Wall Street.

 

Buffett is likely rubbing his hands.

[John Hjorth]

NasDAQ.com - Market Chatter: Berkshire Hathaway Warns Will Walk Away from Oncor if Dates Not Met.

[Guest longinvestor]

NasDAQ.com - Market Chatter: Berkshire Hathaway Warns Will Walk Away from Oncor if Dates Not Met.

Texas is tired of the bankruptcy. They want to be done with it. Berkshire is playing that, surely.

[John Hjorth]

NasDAQ.com - Market Chatter: Berkshire Hathaway Warns Will Walk Away from Oncor if Dates Not Met.

Texas is tired of the bankruptcy. They want to be done with it. Berkshire is playing that, surely.

 

Mr. Buffet is a bridge player - I suppose he is not that bad at playing poker, either.

[Guest longinvestor]

http://www.businesswire.com/news/home/20170725006567/en/10-Stakeholders-Support-Berkshire-Hathaway-Energy%E2%80%99s-Bid

 

This is somewhat rare, all of the publicity with a deal that is not consummated yet.

 

It underscores just how good the alternate approach usually taken by Berkshire is. Which is to make deals with a handshake and numbers written on a napkin. And super fast. No room for leaks and the publicity that goes with it.

 

Alas, as the pile grows from 10's to 100's of Billion, some such deals are inevitable. Maybe with Oncor, they are learning a script of how to do this well for the future.

 

All that said, this is public lesson of how Berkshire does deals versus almost everyone else. Especially PE firms, with the attendant Investment Bank role etc. I love it. 

[John Hjorth]

Yes, this is exceptional, longinvestor,

 

Mr. Abel is building up maximum pressure by lobbying.

 

Reuters: Elliott wins more time to beat Berkshire Hathaway's Oncor deal.

 

This is getting as exciting as a high quality crime novel.

[gfp]

Some insight into what Oncor charges for their distribution in this article -

http://www.utilitydive.com/news/oncor-drops-proposed-minimum-charge-for-der-customers/448724/

 

Also, confirmation in the recent 10-Q that Berkshire expects to buy out all of the minority interests in Oncor under separately negotiated deals, bringing the total deal to over $11 B for 100%.

[John Hjorth]

I see some moves by Elliott described and covered in the "General news" topic by provided links, and some "counter" messages from Berkshire. Thank you to fellow board members for that.

 

Yes, we are in the final stages of a game of Chess here, involving billions of USD.

 

As I understand things, Future Energy Holdings has been in bankruptcy for about four years. Here I understand "bankruptcy" as "being under creditor protection". [i hope I have understood the phrase "bankruptcy" correctly here.]

 

My question here is: How long can this go on? Here, where I live [Denmark], a company cannot exist for such a long period without a solution to its debt/liquidity problems without being "declared dead", meaning going into forced liquidation, managed by a liquidator, who has power to wind up the whole Holly-go-Molly, thereby enforcing losses on creditors.

[gfp]

In the United States a company can stay under creditor protection for a very long time in certain cases.  W.R. Grace, a company that made Ted Weschler very wealthy, was in bankruptcy for something like 12 years.  That said - it costs a lot in professional fees and other expenses and these failed deals have breakup fees (like quarter billion dollar break fees) - and all the money spent on that type of stuff reduces the amount available for creditors.  And since Oncor is completely "ring-fenced," it's not like time is on creditors side with a profitable business paying dividends up to the bankrupt parent.  Oncor can go up in value over time, which might help get a higher price - but it won't send cash up to the EFH entities until it is sold.

 

Ultimately, Berkshire Energy is betting that their deal is the only deal that gets by regulators and Elliott is betting that they can bluff BRK into raising.  Elliott is extremely unlikely to come up with a deal that wins over regulators - but we will see...

[Guest longinvestor]

In the United States a company can stay under creditor protection for a very long time in certain cases.  W.R. Grace, a company that made Ted Weschler very wealthy, was in bankruptcy for something like 12 years.  That said - it costs a lot in professional fees and other expenses and these failed deals have breakup fees (like quarter billion dollar break fees) - and all the money spent on that type of stuff reduces the amount available for creditors.  And since Oncor is completely "ring-fenced," it's not like time is on creditors side with a profitable business paying dividends up to the bankrupt parent.  Oncor can go up in value over time, which might help get a higher price - but it won't send cash up to the EFH entities until it is sold.

 

Ultimately, Berkshire Energy is betting that their deal is the only deal that gets by regulators and Elliott is betting that they can bluff BRK into raising.  Elliott is extremely unlikely to come up with a deal that wins over regulators - but we will see...

+1 ..It's a bluff to try and squeeze Berkshire to pony up a bit more. Given that this has been playing out for four years already, time is not on Elliott's side. Oncor has already come out saying that should this deal fall through, any future offers from Berkshire would likely be for less than this time.

 

Who knows, Buffett may relent and pony up a nickel more as an act of good faith, and can say "They wrung out the last nickel from us" and Elliott goes away happy(not).

 

[John Hjorth]

Thanks, globalfinancepartners & longinvestor,

 

- I would like to see that USD 100 B in cash and T-bills [-and counting!] reduced "just a bit" and converted to earnings! -Chess it is.

[villainx]

I asked this before but how much higher is Elliott hoping to get.  The difference in the competing offers seem relatively small.

[rb]

In the United States a company can stay under creditor protection for a very long time in certain cases.  W.R. Grace, a company that made Ted Weschler very wealthy, was in bankruptcy for something like 12 years.  That said - it costs a lot in professional fees and other expenses and these failed deals have breakup fees (like quarter billion dollar break fees) - and all the money spent on that type of stuff reduces the amount available for creditors.  And since Oncor is completely "ring-fenced," it's not like time is on creditors side with a profitable business paying dividends up to the bankrupt parent.  Oncor can go up in value over time, which might help get a higher price - but it won't send cash up to the EFH entities until it is sold.

 

Ultimately, Berkshire Energy is betting that their deal is the only deal that gets by regulators and Elliott is betting that they can bluff BRK into raising.  Elliott is extremely unlikely to come up with a deal that wins over regulators - but we will see...

+1 ..It's a bluff to try and squeeze Berkshire to pony up a bit more. Given that this has been playing out for four years already, time is not on Elliott's side. Oncor has already come out saying that should this deal fall through, any future offers from Berkshire would likely be for less than this time.

 

Who knows, Buffett may relent and pony up a nickel more as an act of good faith, and can say "They wrung out the last nickel from us" and Elliott goes away happy(not).

I don't think that BRK ponies up anything more. This is not just about value it's about setting precedent. BRK would rather walk away than pay more because if they pay more they'll have a bunch of Elliott types trying to vulch on all they're future deals.

 

The nickel thing was for Mid-American and that was a transformative acquisition for BRK and I bet they really wanted it. Oncor is no such thing.... so not even a nickel.

[gfp]

I asked this before but how much higher is Elliott hoping to get.  The difference in the competing offers seem relatively small.

 

Elliott appears to want $400 million more, but it may be affected by whether the judge rules that NextEra is entitled to their breakup fee.  NextEra, understandably thinks it is owed the cash but they probably could have closed the deal if they were willing to budge on the ring fencing they knew the regulators wanted.  If Elliott "wins" and both Berkshire and NextEra get $270m, then Elliott doesn't really "win" until their equalization plan results in a capital gain down the line.

[villainx]

I asked this before but how much higher is Elliott hoping to get.  The difference in the competing offers seem relatively small.

 

Elliott appears to want $400 million more, but it may be affected by whether the judge rules that NextEra is entitled to their breakup fee.  NextEra, understandably thinks it is owed the cash but they probably could have closed the deal if they were willing to budge on the ring fencing they knew the regulators wanted.  If Elliott "wins" and both Berkshire and NextEra get $270m, then Elliott doesn't really "win" until their equalization plan results in a capital gain down the line.

 

Thanks.  That's what I thought, which seems a lot of work for small bump.

[gfp]

I think percentage wise it is a big difference for some of the classes of bonds that will not receive a full recovery and were purchased by Elliott at big discounts to par.  But I'm not an expert on the various classes of creditors involved here.  I know several will not receive 100 cents on the dollar

 

I asked this before but how much higher is Elliott hoping to get.  The difference in the competing offers seem relatively small.

 

Elliott appears to want $400 million more, but it may be affected by whether the judge rules that NextEra is entitled to their breakup fee.  NextEra, understandably thinks it is owed the cash but they probably could have closed the deal if they were willing to budge on the ring fencing they knew the regulators wanted.  If Elliott "wins" and both Berkshire and NextEra get $270m, then Elliott doesn't really "win" until their equalization plan results in a capital gain down the line.

 

Thanks.  That's what I thought, which seems a lot of work for small bump.

[gfp]

Dow Jones says 3rd bidder may have emerged -

https://www.wsj.com/articles/third-bidder-emerges-for-energy-futures-oncor-1503085566

 

edit - looks like Sempra energy is the new bidder

[bizaro86]

Brk won't raise, because that hurts them on every future deal. Right now, when they say that is their top price people believe them.

[villainx]

Dow Jones says 3rd bidder may have emerged -

https://www.wsj.com/articles/third-bidder-emerges-for-energy-futures-oncor-1503085566

 

Including the breakup fee ... is the new bid even higher?  I don't understand.  Must have something to do with debt covenants?

 

 

[abitofvalue]

could be wrong here but doesnt the judge have to approve the deal and BRK's termination fee first? 

[John Hjorth]

There will be a court ruling on the Berkshire offer on coming monday, right? I have somehow more or less lost track of the important dates in this potential deal, tried to find it by going back in this topic.