Emergence from Bankruptcy

Earlier this month, California-based Sempra Energy received preliminary approval from the U.S. Bankruptcy Court for the District of Delaware to proceed with the company's plan to acquire a majority ownership share of Oncor Electric Delivery Company, an operating subsidiary of Texas-based Energy Future Holdings (EFH).

If all other necessary approvals are obtained as well, the transaction would pave the way for EFH to finally recover from its three-year struggle with bankruptcy. Under the plan presented to the court, Sempra will pay approximately $9.45 billion for an 80% interest in Oncor. Sempra is not the first suitor for Oncor's assets, however.

Last year, the Texas Public Utilities Commission (PUC) authorized an investment group led by billionaire Ray Hunt to purchase the Texas utility. But because that buyout was premised on transformation of Oncor into a real estate investment trust, which would give rise to thorny tax issues, the Texas PUC had attached a number of conditions to its approval. Viewing those conditions as creating too much regulatory uncertainty to warrant going forward with the deal, Hunt and his group withdrew their proposal.

The Hunt plan was followed by an offer from Florida-based NextEra Energy to acquire Oncor, but that plan was scuttled by the PUC. Just before Sempra reached agreement with EFH, it appeared that Warren Buffet's Berkshire Hathaway would be the entity to come to EFH's rescue. It reportedly had arranged to pay $9 billion for Oncor. Then Sempra came in and upped the ante by $450 million.

According to Sempra's filings, it believes its 80% share of Oncor will produce an interest in EFH of about 60%. Although approval by the bankruptcy court was an important first step in consummating the acquisition, the companies acknowledged that other approvals are needed as well, including from the Texas PUC, the Federal Energy Regulatory Commission, and the U.S. Department of Justice. (14-10979)