WASHINGTON: Warren Buffett’s Berkshire Hathaway said yesterday it would pay $9 billion to pick up the parent of Texas power transmission company Oncor Electric Delivery Company from bankruptcy, stepping up its pursuit of steady returns in utilities.
If the all-cash deal is approved by a bankruptcy judge and Texas regulators, it will hand Berkshire ownership of one of the largest US electricity transmission companies. Texas regulators shot down two previous deals to sell Oncor to other companies.
The deal also highlights the prominence of Greg Abel, 55, Berkshire Hathaway Energy’s chief executive. Investors consider him a top candidate to succeed Buffett, 86, at the Omaha, Nebraska-based parent company’s helm.
Buffett and Abel did not respond to requests for interviews.
Dallas-based Oncor delivers power to more than 3.4 million homes and business through roughly 196,000km of transmission and distribution lines. It is 80 per cent owned by Energy Future Holdings, which Berkshire has now agreed to acquire.
Oncor posted $431 million of profit in 2016, and similar sums in the prior three years.
Buffett values such consistency, telling Berkshire shareholders in February that utilities generate “recession-resistant” earnings because they offer an “essential service” that generates “remarkably steady” demand.
Abel’s unit has in recent years also deepened its commitment to renewable energy, including wind, entitling it to tax credits that help bolster Berkshire’s balance sheet.
Berkshire Hathaway Energy typically generates nearly 10pc of its parent’s profit, contributing $2.29bn to an overall $24.07bn in 2016.
Oncor’s takeover requires approval by Texas’ Public Utility Commission (PUCT), which in 2016 and 2017 scuttled bids by NextEra Energy and privately held Hunt Consolidated Inc.
Regulators had asked for Oncor to be ringfenced so that it does not assume new debt from its acquirer and does not pay out too much cash as dividends.
“We anticipate that Berkshire might be more willing to leave the ringfence in place and allow restriction on dividends, which was a pre-condition that NextEra was unwilling to accept. This could make approval of Berkshire’s bid by the PUCT a little less cumbersome,” Cowen & Co analysts said in a note.
The PUCT is required by law to rule on Berkshire’s bid within six months of receiving an application. A spokesman declined to comment on Berkshire’s prospects.
Berkshire expects the purchase to close in the fourth quarter, pending approvals by state and federal regulators and the judge overseeing Energy Future’s bankruptcy proceedings.
It said the transaction implies an equity value of about $11.25bn for Oncor. Kirkland & Ellis, a law firm representing Energy Future, said the transaction’s enterprise value was about $18.1bn.