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Sempra Energy to Acquire Oncor for $18.8B, Beats Buffet
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Californian utility provider Sempra Energy (SRE - Free Report) is set to buy Texas’ electrical grid giant Oncor Electric Delivery Company, LLC (Oncor). The move came after Sempra Energy confirmed to acquire Oncor’s parent company, Energy Future Holdings Corp., on Aug 21.
Per media sources, by signing the deal, Sempra Energy practically snatched away Oncor from Warren Buffet’s Berkshire Hathaway Inc. (BRK.B - Free Report) that has been bidding for this regulated utility, since July.
Details of the Deal
Including Oncor’s debt, the enterprise value of Sempra's proposed offer for Oncor is $18.8 billion. Excluding debt, Sempra Energy will pay cash worth $9.45 billion for ownership rights of Energy Future as well as Oncor.
To fund the $9.45 billion cash, Sempra Energy plans to combine its own debt and equity, third-party equity, and $3 billion of expected investment-grade debt at the reorganized holding company. Sempra Energy expects its equity ownership after the transaction to be approximately 60% of the reorganized Energy Future company.
The buyout, expected to be over by the first half of 2018, will be accretive to Sempra Energy's earnings beginning in 2018. However, the deal remains subject to customary closing conditions, including the approval from a handful of the U.S. regulatory authorities.
Post the buyout, Sempra Energy will maintain the existing independence of Oncor's board of directors. On completion, the Oncor board will consist of 13 directors, including seven independent directors from Texas, two from existing equity holders and two from the new Sempra Energy-led holding company.
Benefits of the Buyout
The Oncor buyout will add Texas’ largest electric transmission and distribution provider to Sempra Energy’s portfolio, thereby expanding its market in the state where it currently operates only 10 power plants. Apart from expanding the company’s regulated earnings base, this deal will boost Sempra Energy’s future growth in the Texas energy market and U.S. Gulf Coast region.
Although Energy Future has been suffering from bankruptcy issues since 2014,Oncor that earned $431 million of profit last year has always been considered a viable investment option. Notably, Oncor’s plants provides electricity to more than 3.4 million homes and businesses in Texas and with its acquisition Sempra Energy’s customer base is thus poised to grow.
Moreover, per terms of the agreement, Sempra Energy will support Oncor's plan to invest $7.5 billion of capital over a five-year period to expand and reinforce its transmission and distribution network. This in turn will enhance the service territory of Oncor and in turn, Sempra Energy, thereby adding opportunity to earn more profit.
Our Take on the Acquisition
It is interesting to note that this is the fourth time that that an acquisition attempt has been made for Oncor. Last month, Berkshire Hathaway aimed to buy Oncor. In April, NextEra Energy Inc. (NEE - Free Report) made an attempt to take over Oncor but failed to progress amid concerns from the Public Utility Commission of Texas. A buyout attempt last year backed by the Ray Hunt family of Dallas also faltered.
However, this time, Elliott Management Corp. played a vital role in the finalization of the Oncor-takeover deal, with it being the largest creditor of bankrupt Energy Future Holdings. In fact, Elliott strongly opposed Berkshire Hathaway’s $18 billion offer, including debt, made in July, arguing it to be an undervalued one and not in creditors’ interest. On the contrary, the corporation backed Sempra’s bid for Oncor saying this time the proposal offers greater returns than offered by Berkshire.
We believe the Oncor buyout to be a profitable strategic fit for Sempra Energy and will bolster the company's utility and energy infrastructure businesses, once integration is over post acquisition.
Price Performance
Sempra Energy has outperformed the industry it belongs to, in the last one year. During this period, the company’s shares have rallied 9.9% compared with the industry’s gain of 8.4%. This might have been driven by the systematic investments that Sempra Energy makes in its infrastructure development projects.
Just Energy has surpassed the Zacks Consensus Estimate in two of the last four quarters, with an average surprise of 202.52%. The company’s current year earnings estimate has improved by 65.6% over the last 30 days.
Zacks' 10-Minute Stock-Picking Secret
Since 1988, the Zacks system has more than doubled the S&P 500 with an average gain of +25% per year. With compounding, rebalancing, and exclusive of fees, it can turn thousands into millions of dollars.
But here's something even more remarkable: You can master this proven system without going to a single class or seminar. And then you can apply it to your portfolio in as little as 10 minutes a month.
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Sempra Energy to Acquire Oncor for $18.8B, Beats Buffet
Californian utility provider Sempra Energy (SRE - Free Report) is set to buy Texas’ electrical grid giant Oncor Electric Delivery Company, LLC (Oncor). The move came after Sempra Energy confirmed to acquire Oncor’s parent company, Energy Future Holdings Corp., on Aug 21.
Per media sources, by signing the deal, Sempra Energy practically snatched away Oncor from Warren Buffet’s Berkshire Hathaway Inc. (BRK.B - Free Report) that has been bidding for this regulated utility, since July.
Details of the Deal
Including Oncor’s debt, the enterprise value of Sempra's proposed offer for Oncor is $18.8 billion. Excluding debt, Sempra Energy will pay cash worth $9.45 billion for ownership rights of Energy Future as well as Oncor.
To fund the $9.45 billion cash, Sempra Energy plans to combine its own debt and equity, third-party equity, and $3 billion of expected investment-grade debt at the reorganized holding company. Sempra Energy expects its equity ownership after the transaction to be approximately 60% of the reorganized Energy Future company.
The buyout, expected to be over by the first half of 2018, will be accretive to Sempra Energy's earnings beginning in 2018. However, the deal remains subject to customary closing conditions, including the approval from a handful of the U.S. regulatory authorities.
Post the buyout, Sempra Energy will maintain the existing independence of Oncor's board of directors. On completion, the Oncor board will consist of 13 directors, including seven independent directors from Texas, two from existing equity holders and two from the new Sempra Energy-led holding company.
Benefits of the Buyout
The Oncor buyout will add Texas’ largest electric transmission and distribution provider to Sempra Energy’s portfolio, thereby expanding its market in the state where it currently operates only 10 power plants. Apart from expanding the company’s regulated earnings base, this deal will boost Sempra Energy’s future growth in the Texas energy market and U.S. Gulf Coast region.
Although Energy Future has been suffering from bankruptcy issues since 2014,Oncor that earned $431 million of profit last year has always been considered a viable investment option. Notably, Oncor’s plants provides electricity to more than 3.4 million homes and businesses in Texas and with its acquisition Sempra Energy’s customer base is thus poised to grow.
Moreover, per terms of the agreement, Sempra Energy will support Oncor's plan to invest $7.5 billion of capital over a five-year period to expand and reinforce its transmission and distribution network. This in turn will enhance the service territory of Oncor and in turn, Sempra Energy, thereby adding opportunity to earn more profit.
Our Take on the Acquisition
It is interesting to note that this is the fourth time that that an acquisition attempt has been made for Oncor. Last month, Berkshire Hathaway aimed to buy Oncor. In April, NextEra Energy Inc. (NEE - Free Report) made an attempt to take over Oncor but failed to progress amid concerns from the Public Utility Commission of Texas. A buyout attempt last year backed by the Ray Hunt family of Dallas also faltered.
However, this time, Elliott Management Corp. played a vital role in the finalization of the Oncor-takeover deal, with it being the largest creditor of bankrupt Energy Future Holdings. In fact, Elliott strongly opposed Berkshire Hathaway’s $18 billion offer, including debt, made in July, arguing it to be an undervalued one and not in creditors’ interest. On the contrary, the corporation backed Sempra’s bid for Oncor saying this time the proposal offers greater returns than offered by Berkshire.
We believe the Oncor buyout to be a profitable strategic fit for Sempra Energy and will bolster the company's utility and energy infrastructure businesses, once integration is over post acquisition.
Price Performance
Sempra Energy has outperformed the industry it belongs to, in the last one year. During this period, the company’s shares have rallied 9.9% compared with the industry’s gain of 8.4%. This might have been driven by the systematic investments that Sempra Energy makes in its infrastructure development projects.
Zacks Rank & Key Pick
Sempra Energy currently carries a Zacks Rank #3 (Hold). A better-ranked stock in the same space is Just Energy Group, Inc. , carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Just Energy has surpassed the Zacks Consensus Estimate in two of the last four quarters, with an average surprise of 202.52%. The company’s current year earnings estimate has improved by 65.6% over the last 30 days.
Zacks' 10-Minute Stock-Picking Secret
Since 1988, the Zacks system has more than doubled the S&P 500 with an average gain of +25% per year. With compounding, rebalancing, and exclusive of fees, it can turn thousands into millions of dollars.
But here's something even more remarkable: You can master this proven system without going to a single class or seminar. And then you can apply it to your portfolio in as little as 10 minutes a month.
Learn the secret >>