BRK: Oncor Acquisition

[Guest longinvestor]

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.

Yes, August 21 is the court date.

 

Berkshire has laid out their case on what this means for the future of Oncor. There's nothing like that from anyone else in the sense of what's good for Texas over the long term. They will move on, in actuality, they are telling the vultures that they're not interested in talking to them at all. Berkshire Hathaway energy is curating this rate payer friendliness across the US and that's driving some financial folks crazy. It comes down to long term versus short term investing horizon. We will hear some commentary on this from Omaha in the coming years. I actually spent hours talking to the BHE folks at their booth at the AGM. The mantra I heard was "It's all for the rate payers". The game they are playing has few rivals. Berkshire is paving the way to deploy 100's of billions. There will be more Oncors in the future.

[John Hjorth]

Berkshire has laid out their case on what this means for the future of Oncor. There's nothing like that from anyone else in the sense of what's good for Texas over the long term. They will move on, in actuality, they are telling the vultures that they're not interested in talking to them at all. Berkshire Hathaway energy is curating this rate payer friendliness across the US and that's driving some financial folks crazy. It comes down to long term versus short term investing horizon. We will hear some commentary on this from Omaha in the coming years. I actually spent hours talking to the BHE folks at their booth at the AGM. The mantra I heard was "It's all for the rate payers". The game they are playing has few rivals. Berkshire is paving the way to deploy 100's of billions. There will be more Oncors in the future.

 

Thank you for sharing this, 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).

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.

 

After thinking about this carefully, in perspective of Berkshire's future deals and the way Berkshire in general is doing its deals, I agree with it in full, and I also consider it very important.

 

- - - o 0 o - - -

 

So, an Oncor deal monday, or no Oncor deal at all.

 

Thank you all.

[villainx]

I don't see any harm in raising the offer if it makes sense.  Not raising the offer for future deals or principle is just silly.  Buffett and Berkshire are investing, as long as it makes sense, if they had too, which is not saying they have to, raising the offer by a little isn't the end of the world.

 

This is also against the backdrop that Berkshire has a ton of cash and they expressed numerous times that they were glad to pay up or were too strict on sticking to a price.  The cash shouldn't compel them to burn a pocket hole, but it's still there nonetheless.

[John Hjorth]

Extract from Aquisition criteria, Berkshire Annual Report 1995:

A line from a country song expresses our feeling about new ventures, turnarounds, or auction-like sales: "When the phone don't ring, you'll know it's me."

 

Extract from Aquisition criteria, Berkshire Annual Report 2016:

A line from a country song expresses our feeling about new ventures, turnarounds, or auction-like sales: "When the phone don't ring, you'll know it's me."

 

 

 

[alpha]

 

Bloomberg is reporting a deal is close to being announced for Sempra to buy Oncor for 9.3bn

 

https://www.bloomberg.com//news/articles/2017-08-20/sempra-is-said-to-be-near-agreement-to-acquire-oncor-electric

[John Hjorth]

WSJ: Sempra Energy Reaches Deal to Aquire Oncor.

[rb]

well i guess Berkshire's cash balance just went up by 270 million.

[Jurgis]

well i guess Berkshire's cash balance just went up by 270 million.

 

Could I not buy something and get 270M for it?  8)

[John Hjorth]

Sempra Energy Aquisition of Oncor Announcement.

 

Please note - as I understand things - the deal structure appears to be different than the Berkshire bid, and there is no prior consent or approval from regulators etc - at least it appears so.

 

Somehow, we still need to know what happened about the court ruling today.

[gfp]

Sempra's deal isn't a sure thing so we'll just have to wait and see.  It's also not a sure thing that either Berkshire or NextEra will receive their deal break fees.  Certainly will be contested but both may be paid.

 

Sempra's deal structure is financially weaker than Berkshire's and brings in 3rd party equity resulting in Sempra owning 60% of the equity of the parent company after the deal.  Plus additional debt.  They will probably not buy the other 20%.  Sempra has agreed to certain of the ring fencing conditions.

 

Regulators have already seen Berk's proposed structure, including taking out all parent company debt above Oncor and BHE's significantly lower cost of capital benefitting stakeholders.  And Berk was all about the multi-billion dollar capital spending with funding not an issue...

 

Sometimes when you've seen what's possible everything else just seems "less good" for Texas.  Time will tell...

 

Sempra Energy Aquisition of Oncor Announcement.

 

Please note - as I understand things - the deal structure appears to be different than the Berkshire bid, and there is no prior consent or approval from regulators etc - at least it appears so.

 

Somehow, we still need to know what happened about the court ruling today.

[Guest longinvestor]

Nicely summarized. Too bad if they lose it. But if Texan ratepayers get remorseful down the road, that's great for BHE. Again, utility industry moves slowly but plenty of moving and shaking going on. BHE is uniquely positioned. All that said, I need monumental patience, $100B cash be da@%ed. Beats the full bladder syndrome that Buffett talked about.

 

 

Sempra's deal isn't a sure thing so we'll just have to wait and see.  It's also not a sure thing that either Berkshire or NextEra will receive their deal break fees.  Certainly will be contested but both may be paid.

 

Sempra's deal structure is financially weaker than Berkshire's and brings in 3rd party equity resulting in Sempra owning 60% of the equity of the parent company after the deal.  Plus additional debt.  They will probably not buy the other 20%.  Sempra has agreed to certain of the ring fencing conditions.

 

Regulators have already seen Berk's proposed structure, including taking out all parent company debt above Oncor and BHE's significantly lower cost of capital benefitting stakeholders.  And Berk was all about the multi-billion dollar capital spending with funding not an issue...

 

Sometimes when you've seen what's possible everything else just seems "less good" for Texas.  Time will tell...

 

Sempra Energy Aquisition of Oncor Announcement.

 

Please note - as I understand things - the deal structure appears to be different than the Berkshire bid, and there is no prior consent or approval from regulators etc - at least it appears so.

 

Somehow, we still need to know what happened about the court ruling today.

[John Hjorth]

BHE Announcement August 21: Berkshire Hataway Energy Agreement to Acquire Oncor Terminated.

 

I'm not sure how to understand this.

 

- - - o 0 o - - -

 

Edit: My immediate interpretation : Berkshire & BHE walked away, closing the door, as stated earlier it would do.

[racemize]

BHE Announcement August 21: Berkshire Hataway Energy Agreement to Acquire Oncor Terminated.

 

I'm not sure how to understand this.

 

- - - o 0 o - - -

 

Edit: My immediate interpretation : Berkshire & BHE walked away, closing the door, as stated earlier it would do.

 

It says EFH terminated it, so I assume they just accepted the other bid. 

[Guest longinvestor]

So, should they get $275m in breakup, that'll be a special kind of float, which is there for them to double several times over the next 50. Who knows, Sempra screws around with Oncor for another decade or two. BHE will still be around!

[rb]

So, should they get $275m in breakup, that'll be a special kind of float, which is there for them to double several times over the next 50. Who knows, Sempra screws around with Oncor for another decade or two. BHE will still be around!

Meh, I guess they'll just buy all of Sempra during the next recession/market crash.

[racemize]

I don't think it is clear the regulators will approve it though. They knocked out two so far.

[gfp]

If they get it, the $270m is better than float.  It's equity capital after it gets taxed as income.  And BHE of course had considerable professional fees in preparing the bid and lobbying stakeholders.  And then there was that loss on the EFH/TCEH bonds.

 

On the bright side, its been 6 months since the Unilever bid and that one might have better economics.  Still probably a no-go but it was a nice try

 

So, should they get $275m in breakup, that'll be a special kind of float, which is there for them to double several times over the next 50. Who knows, Sempra screws around with Oncor for another decade or two. BHE will still be around!

[John Hjorth]

It's an increadible difficult area to do aqusitions Berkshire style, because of all the involved parties. Think Constellation Energy break up in 2008, too. So, this is not the first time a Berkshire deal has gone south in this industry - ... if it ends up going south.

[rb]

It's an increadible difficult area to do aqusitions Berkshire style, because of all the involved parties. Think Constellation Energy break up in 2008, too. So, this is not the first time a Berkshire deal has gone south in this industry - ... if it ends up going south.

Yea but somehow they seem to get a win either way. On the Connie deal they got $593 million. Not bad for just showing up.

[gfp]

Constellation was even better than that -

"Even without completing the deal for Constellation, MidAmerican still comes out well. Constellation will have to pay MidAmerican $593 million in cash — including a $175 million termination fee — and issue MidAmerican 20 million shares, or 9.9% of its stock. The preferred stock that MidAmerican bought with its $1 billion infusion will be converted into a loan with a 14% interest rate that will have to be repaid in a year."

 

 

 

It's an increadible difficult area to do aqusitions Berkshire style, because of all the involved parties. Think Constellation Energy break up in 2008, too. So, this is not the first time a Berkshire deal has gone south in this industry - ... if it ends up going south.

Yea but somehow they seem to get a win either way. On the Connie deal they got $593 million. Not bad for just showing up.

[John Hjorth]

On a tentative basis, how should we look at this situation?:

 

Possible outcomes:

 

1. Sempra Energy gets all needed regulatory approvals etc., Sempra is the new owner of Oncor [as stated in the bid from Sempra, in all details]

 

2. Sempra Energy does get turned down by regulators etc., for whatever reason on their bid, meaning: The whole process is starting all over again, again meaning:

 

2a. Berkshire puts in a new, adjusted bid [to me, adjusted for the break up fee already achieved so far?]

2b. Elliott steps in again with something [?]

 

- - - o 0 o - - -

 

Marathon aquisition.

[james22]

Meh, I guess they'll just buy all of Sempra during the next recession/market crash.

 

This.

[gfp]

Barron's is reporting that since BRK's deal for EFH was never officially approved (I guess by the BK judge), BRK will not receive the $270m break fee.  Not sure if that is accurate, but that's what they are reporting.  Oh well.  Let's see what the regulators say.

 

http://www.barrons.com/articles/berkshire-hathaway-even-when-it-loses-it-wins-1503410341

[ValueMaven]

Guess we will find out Monday...

 

It seemed to me like it was approved...

[ValueMaven]

https://www.dallasnews.com/business/oncor/2017/10/26/texas-regulators-askhard-questions-sempras-945-billion-deal-oncor