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NextEra to Buy Energy Future’s Oncor in $18.4 Billion Deal (7/29/16)

Sale of Texas transmissions business would help wrap up Energy Future’s bankruptcy

By Peg Brickley

NextEra Energy Inc. agreed to buy Energy Future Holdings Corp.’s stake in Oncor, in a deal that values the electricity transmissions business at $18.4 billion.

The transaction will be a crucial element in getting Energy Future—the former TXU Corp.—out of chapter 11 bankruptcy, which began in April 2014. Meanwhile, the deal for Oncor makes NextEra, of Florida, a major player in the Texas electricity market.

NextEra has been jousting with rivals for years to buy Energy Future’s 80% stake in the thriving, regulated transmissions business, which carries electricity to some 10 million Texans.

In a release, NextEra Chairman and Chief Executive Jim Robo said the Oncor name and the company’s management will remain, along with its Dallas headquarters.

“NextEra Energy shares Oncor’s strategy of making smart, long-term investments in transmission and distribution to continue to deliver affordable, reliable electric service to its customers,” Mr. Robo said.

The transaction includes the equity of the reorganized holding company Energy Future and certain of its subsidiaries as well as the majority stake in Oncor.

Other suitors included Texas’ Hunt Consolidated Inc., which was thwarted by Texas regulators in a takeover bid that had won bankruptcy court approval.

NextEra began the competition for Oncor two years ago, when Energy Future’s case was bogged down in court fights. Investors spotted the hidden value in the transmissions business, which was operating free and clear of Energy Future’s financial troubles, and was originally slated to be handed over to certain creditors in satisfaction of their debt.

Once NextEra announced it was interested in buying Oncor, Energy Future decided to invite offers for the business. NextEra continued its pursuit even after Hunt was named Energy Future’s chosen buyer.

The NextEra deal must go before the Public Utility Commission of Texas for approval, but it doesn't include the component that scuttled the Hunt takeover, which was a proposal to convert Oncor into a real-estate investment trust structure.

The deal also must be approved by a bankruptcy judge as part of Energy Future’s plan to exit bankruptcy.

Loaded with $42 billion in debt, the former TXU is splitting up in bankruptcy, using its Luminant and TXU Energy businesses to pay one major set of creditors, including senior lenders owed $24.4 billion.

NextEra has been looking to expand its footprint. It proposed buying the Hawaiian Electric Co., but two weeks ago state officials rejected NextEra’s $4.3 billion bid, saying they were unconvinced the company would help Hawaii achieve its aggressive goal of generating 100% of electricity from renewable sources by 2045.

Separately on Friday, Energy Future revealed it had received a long-awaited ruling from the Internal Revenue Service on the tax implications of the company split. The ruling means there will be no massive tax bill when Energy Future divide its businesses to get them out of bankruptcy.

The value from the Oncor deal will go to pay off other creditors. NextEra said it would fund $9.5 billion to repay Energy Future debt, an amount that will cover cash payments to some creditors. NextEra stock also will be used to pay off some debts.

Energy Future has been grappling in bankruptcy with the legacy of a leveraged buyout that piled on debt just as new technologies began to roil the energy markets. At the time of the buyout, the staid transmissions business Oncor that was so closely watched by regulators wasn't considered a prized possession.

That changed over years of market shifts, Mr. Gordon, the business school professor, said. “The regulated business was the dog of the deal when the buyout was done. But the regulation that made it the dog saved it from the market,” he said.

http://www.wsj.com/articles/nextera-to-buy-energy-futures-oncor-in-18-4-billion-deal-1469788926