Elliott Presents A Better Deal For Oncor, Besting Berkshire Hathaway

Elliott Management has released a plan to block the intended acquisition of Oncor by Berkshire Hathaway. While Berkshire Hathaway had placed a bid amounting to $18 billion, Elliott is offering $18.5 billion inclusive of debt. Elliott is also the biggest creditor of Oncor’s parent firm, Energy Future Holdings.

In documents that were published on the website of Elliott, it was revealed that the hedge fund was not happy with the recovery efforts in the event that Berkshire Hathaway had its way. But with its plan Elliott believes debtholders will get a higher payout.

Debt conversion to equity

In its proposal to buy the energy utility firm, Elliott’s debt would be converted into equity. Elliott would also inject capital into Energy Future Holdings via a third party partnership. This move would let Elliott assume control of Oncor.

“While we are entirely supportive of a transaction with Berkshire or another third party in the event that the value provided by that transaction exceeds the value being proposed by Elliott, we fear that the Berkshire transaction does not provide such value,” Elliot wrote in a letter addressed to EFH’s board.

In Elliott’s plan the value of Energy Future Holdings is placed at $9.3 billion. According to sources Elliott has held discussions with potential partners who include individuals with high networth, infrastructure funds and rival energy firms.

Regulatory concerns

Berkshire’s plan was to acquire 80% of Oncor leaving the 20% stake in the hands of GIC, the sovereign wealth fund of Singapore and Borealis, Omers’ infrastructure subsidiary. Omers is a pension fund based in Canada.

The deal between Energy Future Holdings and Berkshire Hathaway was struck after other deals fell apart as a result of regulatory concerns. A year ago NextEra Energy consented to an agreement to acquire Oncor at a price of $18.4 billion but regulators from Texas blocked the deal since they didn’t want a situation where the two firms would end up under one umbrella.

If Berkshire’s deal goes through, the conglomerate intends to have the rest of the utility operations kept separate from Oncor to avoid a situation where financial problems emanating from other parts of the business affected services to the ten million customers the utility has in the state. Regulators are likely to back the deal given such assurances.

In order for the deal to succeed, Berkshire Hathaway will need the cooperation of creditors. But the opposition presented by Elliot Management now means that Berskhire will have to agree to pay more or give up the acquisition.

One Response

  1. Dale Hill says:

    This article misses the point that a cramdown can occur in spite of Elliott’s debt ownership.
    The Texas energy regulators can block Elliott’s deal. It appears Berkshire has the upper hand even at the price Buffett proposed.

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