Sempra Energy’s tactical move edges Berkshire Hathaway out of bidding race for Energy Future Holdings’ Oncor

The development marks a rare defeat for investment mogul Warren Buffet.

As per a source familiar with the matter at hand, Energy Future Holdings, a bankrupt Texas utility is likely to abandon a deal to sell Oncor, a power transmission company to Berkshire Hathaway Inc for $9 billion and will instead accept Sempra Energy’s bid of $9.45 billion instead.

The development is a rare defeat for Warren Buffett, who typically avoids bidding wars for companies. It also marks a defeat for Berkshire’s Greg Abel, the 55-year-old CEO of its energy unit who is largely viewed as the topmost candidate likely to succeed Buffett, 86.

As per multiple sources, Energy Future’s board decided it decided to go with Sempra on Sunday after it received multiple assurances from Sempra that its acquisition bid will be approved by the Public Utility Commission of Texas (PUCT), as well as a U.S. bankruptcy judge.

Last week, Berkshire had issued a statement it would not be raising its bid for Oncor. However, in response to Sempra’s bid, Berkshire had okayed Energy Future to keep an Oncor dividend, hoping that this proposal would be good enough to bridge the price gap, said sources.

Sources preffered the cover of anonimity since the decision has yet to be officially announced.

While Berkshire and Sempra did not immediately respond to requests for comment, Energy Future and Oncor declined to comment.

The development underscores the fact how power generation is becoming increasingly commoditized and less lucrative in the eyes of utilities, which have become wary of exposing themselves to volatile energy prices. Instead, they have become more hungry for electricity distribution assets which have a large demographic base and stable cash flows.

Oncor’s power distribution network covers more than 3.4 million homes and businesses through nearly 122,000 miles (196,000 km) of transmission and distribution lines.

Significantly, Elliott Management Corp, Energy Future’s biggest creditor, had opposed Berkshire’s bid with the arugument that it had undervalued Oncor; it had also threatened to veto the deal. In fact, Elliott had been trying to put together its own bid for $9.3 billion for Oncor.

Interestingly, Sempra decided to jump into the bidding process once it saw the opposition that Berkshire was facing from Elliott, said sources.

Elliott has indicated it will support Oncor’s sale to Sempra, said a source.

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