Will Berkshire Bid on Oncor?

(BRK.A), (BRK.B)

Will Berkshire Hathaway Energy enter the bidding for Energy Future Holdings’ electricity transmission business, Oncor?

Oncor is a regulated electric transmission and distribution service provider that serves 10 million customers across Texas. The sixth largest in the U.S., the company is the largest distribution and transmission system in Texas, with approximately 119,000 miles of lines and more than 3 million meters across the state.

Oncor is currently owned by a limited number of investors, including majority owner, Energy Future Holdings Corp., which landed in bankruptcy after amassing $40 billion in debt from a leveraged buy-out engineered by private equity firms KKR & Co. and TPG.

Oncor was originally scheduled to be auctioned in November 2014, but Judge Christopher Sontchi halted the process in order to give creditors more time to negotiate. Judge Sontchi recently okayed the restart of the bidding process, which is now on track for March 2015.

A strong fit for Berkshire?

Berkshire’s interest is no secret. In September 2014, Berkshire Hathaway Energy and several other energy companies, including NextEra Energy, signed confidentiality agreements for the purpose of exploring the acquisition of Oncor.

The acquisition of transmission lines have been high on Berkshire Hathaway Energy’s list of late. In April 2014, the company made a $2.9 billion purchase of Canadian company AltaLink from SNC-Lavalin Group Inc.

Oncor’s price will be substantially larger than AltaLink, with an estimated value in the range of $17.5 billion. This puts it in line with Warren Buffett’s goals to acquire more “elephants” in the $20 billion range.

In June 2014, Buffett noted that Berkshire had already poured $15 billion into acquiring energy companies and he declared “There’s another $15 billion ready to go, as far as I’m concerned.”

Could Oncor fit that bill?

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.