Can I Get an Oncor
Warren Buffett is wrapping his hands around Oncor’s $431 million (profit) electricity business.
To do so, he’s buying Energy Future—Oncor’s parent company—for $9 billion.
Energy Future has a dark past
Back in 2007, TPG, KKR and Goldman Sachs paid $45 billion for Texas’ largest electricity company (in the biggest leveraged buyout ever).
Then this little thing called fracking happened.
Despite 122,000 miles of electricity distribution and 11.6 million customers, little could be done to endure the sharp rise in natural gas supply and sharp fall in profit margins.
Very quickly, Energy Future was once again…considering its future.
In rides Buffett with a coke in hand
Texas regulators have cracked the whip on Energy Future’s potential suitors (NextEra and Hunt Consolidated), leaving it hovering in bankruptcy limbo since 2014.
But, Berkshire’s deal offers exactly what the doctor ordered: a strong balance sheet with $96 billion in cash.
So, why is Buffett buying?
For the old-school value investor, this deal checks all the boxes.
Undervalued: Energy Future’s enterprise value is estimated to be $18 billion. Berkshire is paying half of that—check.
Reliable: The utility business is tediously predictable, producing long-term stable returns—check.
Strong Leadership: Greg Abel (future Buffett successor?) has been the lifeblood of Berkshire’s energy arm since day one—check.
And here’s the icing on the cake:
Buffett lost $873 million (pre-tax) on Energy Future bonds in 2013, so for him, this deal is personal.
But activist investor Paul Singer may want in on the action
The ship-seizing, CEO-bullying, government-suing hedge fund hotshot also has history with Energy Future.
Singer has notoriously gotten his way through any means necessary and he just so happens to own $2.9 billion in Energy Future debt.
For now, Singer’s fund, Elliott Management, has yet to submit a counterbid, but if they decide to enter the ring, this baby could go a full ten rounds.
Would you prefer a longer, in-depth story like this to start off the brew and then three shorter stories or just four shorter stories?
a) 1 Longer, 3 Shorter
b) 4 Shorter
Email us with any additional thoughts!