Coverage: Elliott’s bid for Oncor tops Buffett

Elliott Management Corp., the largest creditor of the bankrupt parent of Oncor Electric Delivery Co., unveiled a plan on Monday to best Berkshire Hathaway Inc.’s deal for the Texas utility with a bid worth $18.5 billion.

Jessica DiNapoli of Reuters had the news:

Elliott revealed in documents published on its website it was unhappy with the recovery to some creditors under an $18.1 billion deal announced by billionaire Warren Buffett’s Berkshire on Friday. The hedge fund believes its acquisition offer would result in a higher payout to debtholders.

New York-based Elliott’s proposal to acquire Energy Future Holdings Corp calls for a complex conversion of its debt to equity and for an outside equity partner help finance the deal. Reuters first reported on Elliott exploring a bid for Oncor on Friday.

The $31 billion hedge fund’s bid would be a rare challenge to Buffett, who avoids auctions for companies and has told his investors he does not like to participate in bidding wars.

Elliott, run by billionaire Paul Singer, also disclosed on Monday that it would keep in place a corporate “ringfencing” structure that would prevent additional debt from being added to Oncor, or too much cash being paid out as dividends.

James Fontanella-Khan of the Financial Times reported that creditors must approve either deal:

Berkshire plans to keep Oncor ringfenced from the rest of its utilities operations, so any financial problems in other parts of its business would not affect service to its 10m customers across the state. Such a solution is likely to win the regulator’s backing for the deal being completed.

However, for the deal to go through, Berkshire will require creditors to be onboard as well. Elliott’s opposition to the current terms suggests that Mr Buffett will either have to increase his offer or be forced to walk away.

Berkshire and EFH were not immediately reachable for comment.

EFH used to be known as TXU, and in 2007, KKR, TPG Capital and the buyout arm of Goldman Sachs acquired the company for $45bn in the largest ever leveraged buyout. The company later collapsed under the weight of debt that the buyout groups put on it to finance the deal.

Peg Brickley and Nicole Friedman of Dow Jones Newswires reported that Oncor executives are vague about Elliott’s proposal:

Oncor executives said in an interview that they have little knowledge of Elliott’s plan.

Oncor led talks in Austin with state regulators and large customers for several weeks ahead of Berkshire’s bid, said Allen Nye, senior vice president at Oncor. The parties hammered out a list of conditions on which Berkshire and the regulators could agree.

Elliott attended one of those meetings but didn’t provide enough details of its plan to reach an agreement with the regulators, Mr. Nye said. Mr. Nye would become Oncor’s chief executive if the Berkshire transaction closes.

“Elliott has indicated they’re pursuing a concept, but it’s no more than a concept to us at this point,” said Bob Shapard, Oncor’s chief executive. “There’s not a definite proposal that we can take to Austin and try to make a deal off, yet.”