NextEra Energy Inc. (NYSE: NEE) agreed to buy Energy Future Holdings Corp.’s Oncor Electric Delivery Co. LLC, adding the largest electric transmission operator in Texas in a deal valued at about $18.4 billion.
The agreement is part of a reorganization plan designed to allow Energy Future to emerge from bankruptcy after restructuring $50 billion in debt, according to a statement from Juno Beach, Florida-based NextEra Friday. A takeover would require the approval from the court handling Energy Future’s Chapter 11 case and from Texas regulators.
The sale continues a wave of takeovers in the utility sector as low prices and flat demand lead companies to seek growth through acquisitions. The announcement comes less than two weeks after NextEra’s $2.63 billion deal to buy Hawaii’s biggest power supplier, Hawaiian Electric Industries Inc., fell apart. Fortis Inc. (TSE: FTS) agreed to buy ITC Holdings Corp. (NYSE: ITC) and TransCanada Corp. (NYSE: TRP) is adding Columbia Pipeline Group Inc. (NYSE: CPGX).
“It sounds like they were able to offer the best deal to creditors,” Bloomberg Intelligence analyst Stacy Nemeroff said by phone Friday. “Oncor is a prized asset: Electric transmission and distribution in a state where they already have a good relationship with regulators.”
State regulators in Hawaii rejected that transaction on July 15, and NextEra withdrew its bid shortly after. NextEra will pay Hawaiian Electric a $90 million breakup fee and as much as $5 million for expenses related to the failed takeover.
“NextEra proposed to take a leadership role in the integration of renewable energy into the power grid in Hawaii,” Nemeroff said. “Texas is an even bigger opportunity to do that.”
As part of the transaction, NextEra Energy intends to fund $9.5 billion, primarily for repayment of Energy Future’s debt. Of that amount, it is expected that certain creditors will be paid primarily in cash with the remainder in NextEra Energy common stock. NextEra Energy intends to use a combination of debt, convertible equity and proceeds from asset sales to fund the cash portion.
“It’s part of the wave of mergers and acquisitions that we’ve seen and the desirability of regulated assets in this low-cost financing environment,” Paul Patterson, a New York-based analyst at Glenrock Associates LLC, said by phone Friday.
Energy Future can still accept other bids before bankruptcy court approval of its agreement with NextEra Energy. If it does, Energy Future must pay NextEra Energy a $275 million termination fee.
"We are proud to own and operate one of the most efficient, reliable and low-cost utilities in the nation,” NextEra’s chief executive officer Jim Robo said in the statement. “Our deep operating expertise in Texas and across the nation, strong financial profile and experience operating in a regulated utility environment offer uniquely compelling advantages."
A group led by Hunt Consolidated Inc. had previously agreed to buy Oncor, but the Public Utility Commission of Texas imposed conditions on its purchase that investors wouldn’t sign off on. That led to a second round of bids for Texas’s biggest transmission operator.
Warren Buffett’s Berkshire Hathaway Inc. and Edison International were among the other companies that had expressed interest in Oncor, people familiar with the talks said earlier this month.