Sempra Energy to Acquire Energy Future Holdings for USD9.45 Billion

Published: Aug 20 2017
Deal Summary

Sempra Energy, an energy services holding company, has agreed to acquire Energy Future Holdings Corp. (EFH), a holding company engaged in power generation, transmission and distribution of electricity, for a purchase consideration of approximately USD9.45 billion in cash.

Under the agreement, Sempra Energy will acquire EFH which indirectly holds 80% stake in Oncor Electric Delivery Company LLC (Oncor), a power transmission and distribution company. The enterprise value of the transaction is approximately USD18.8 billion, including the assumption of Oncor's debt. Sempra Energy expects to fund the transaction using a combination of its own debt and equity, third-party equity, and USD3 billion of expected investment-grade debt at the reorganized holding company. Sempra Energy has received financing commitments from RBC Capital Markets and Morgan Stanley. Sempra Energy expects its equity ownership after the transaction to be approximately 60% of the reorganized holding company. As part of the transaction, Sempra Energy has committed to support Oncor's plan to invest USD7.5 billion of capital over a five-year period to expand and reinforce its transmission and distribution network.

At the completion of the transaction, Bob Shapard, Oncor's CEO, will become executive chairman of the Oncor board of directors and Allen Nye, currently Oncor's general counsel, will succeed Shapard as Oncor's CEO.

Earlier on July 7, 2017, Berkshire Hathaway Energy Company, a subsidiary of Berkshire Hathaway Inc., has agreed to acquire EFH for a purchase consideration of approximately USD9 billion in cash. Also, according to the sources, on the same day, Elliott Management Corp., the US hedge fund that is the largest creditor of EFH, intended to acquire EFH.

Elliott Management is supporting Sempra Energy’s bid. Elliott Management had vowed to oppose the Berkshire Hathaway’s offer because it was too low and not in creditors’ interest, the sources added. On August 16, 2017, Elliott Management has acquired a specific class of debt worth about USD60 million from Fidelity Investments, that gives Elliott Management the power to block Berkshire Hathaway’s utility deal.

Earlier on July 29, 2016, NextEra Energy, Inc., a power generation, transmission and distribution company, through its newly formed subsidiary, has agreed to acquire EFH for a purchase consideration of approximately USD18.4 billion. Prior to the NextEra Energy acquisition agreement, EFH has filed for bankruptcy in the US bankruptcy court for the District of Delaware. The acquisition agreement was part of an overall plan of reorganization that is designed to allow EFH to emerge from Chapter 11 bankruptcy.

Lazard Ltd and Morgan Stanley are acting as financial advisors while White & Case LLP is acting as legal advisor to Sempra Energy for the transaction.

On September 6, 2017, Sempra Energy has announced that the US bankruptcy court for the District of Delaware (bankruptcy court) has approved the transaction. Oncor and Sempra Energy are expected to file a joint application with the Public Utility Commission of Texas in October 2017 for approval of the transaction.

On October 4, 2017, Oncor and Sempra Energy announced that they will jointly file a change-in-control application on October 5, 2017, with the Public Utility Commission of Texas (PUCT). The application will include 47 regulatory commitments and a new financing structure, under which Sempra Energy proposes to acquire 100% of EFH at the close of the transaction with no third-party equity investors or EFH debt. Sempra Energy expects to fund approximately 65% of the USD9.45 billion purchase price with Sempra Energy equity and 35% with Sempra Energy debt.

The transaction is subject to customary closing conditions, including the approval of the Public Utility Commission of Texas, U.S. Bankruptcy Court of Delaware, Federal Energy Regulatory Commission and the U.S. Department of Justice under the Hart-Scott-Rodino Act. Sempra Energy expects the transaction to be completed in the first half of 2018.

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