Sempra Energy has filed its plans to acquire Oncor Electric Delivery Co. LLC with the Federal Energy Regulatory Commission and Texas regulators.
San Diego-headquartered Sempra filed its application with FERC (FERC docket EC18-2) and the Public Utility Commission of Texas on Oct. 5, roughly six weeks after it launched its $9.45 billion bid for the Texas transmission and distribution utility. On Oct. 4, Sempra committed to dropping plans for a third-party investor in the deal and said it will acquire all interests in Oncor's indirect parent company Energy Future Holdings Corp., or EFH.
Sempra said it plans to finance the purchase through the public debt and equity markets by targeting a $9.45 billion capital raise, split 65% in new equity issuance and 35% debt issuance. The result would give Sempra complete ownership of EFH's 80% equity interest in Oncor.
"Sempra will extinguish all debt that resides above Oncor at [Energy Future Intermediate Holding Co. LLC] and EFH, reducing it to zero immediately following the closing of the proposed transaction and maintain it at zero going forward," Sempra wrote in its application with the PUCT. "As a result of this merger, 100 percent of the interests in reorganized EFH will be held indirectly by Sempra. This new ownership structure of reorganized EFH will result in EFH's approximately 80.03 percent indirect interest in Oncor being owned by Sempra, with [Texas Transmission Investment LLC] maintaining its 19.75 percent ownership interest in Oncor."
Sempra has committed to Oncor maintaining a separate headquarters and management in Dallas with current Oncor CEO Robert Shapard assuming the role of executive chairman of Oncor's board and Oncor Senior Vice President, General Counsel and Secretary Allen Nye Jr. assuming the role of Oncor CEO and becoming a board member. Sempra further committed to separate boards of directors at Oncor and Oncor Holdings with at least 13 and 10 directors, respectively, of which a majority qualify as independent from Sempra and its subsidiaries. Oncor's board would have the sole right to determine dividends.
Sempra did indicate in an Oct. 4 investor presentation that it remains open to the prospect of acquiring 100% of Oncor, should the remaining 20% equity owned by Texas Transmission Investment eventually be offered for sale.
"We think that having [Texas Transmission Investment] as a partner is not at all a bad thing," Sempra Chairman, President and CEO Debra Reed. "If that were to come for sale, we would certainly be interested in it, and we would be certainly interested in transacting over time to acquire those shares and acquire 100% of the asset."
The transaction marks yet another attempt to acquire Oncor since EFH filed for bankruptcy in April 2014. Sempra has been eyeing Oncor since the bankruptcy filing and executives have told investors they have learned from the mistakes of previous bidders, including Hunt Consolidated Inc., NextEra Energy Inc. and Berkshire Hathaway Inc. subsidiary Berkshire Hathaway Energy.
The U.S. Bankruptcy Court for the District of Delaware on Sept. 6 approved Sempra's agreement to acquire EFH and its equity interest in the prized, ring-fenced electric utility.
"Sempra is committed to not only maintaining, but strengthening, the ring-fencing measures, including the dividend and debt limitations, that have protected Oncor's financial integrity during EFH's bankruptcy," Sempra wrote in its Oct. 5 merger application with the PUCT.
"The proposed transaction with EFH would end a prolonged, costly, and distracting EFH bankruptcy proceeding," the company wrote. "Sempra has committed that Texas customers will not bear any fees or expenses of the proposed transaction or any expenses or liabilities related to EFH's bankruptcy." (PUCT Control No. 47675)
The transaction represents an enterprise value of about $18.8 billion, including the assumption of Oncor's debt.