NEW YORK: Warren Buffett takes pride in naming his price to buy a company, and not paying a nickel more. But the largest US natural gas distribution utility, an unyielding hedge fund, and a Delaware bankruptcy judge now present one of the biggest challenges to the billionaire’s legendary discipline.
The board of bankrupt Texas utility Energy Future Holdings will meet later on Sunday to decide whether to sell its crown jewel, power transmission company Oncor, to Buffett’s Berkshire Hathaway or accept an opposing bid from Sempra Energy, a person familiar with the confidential deliberations said on condition of anonymity.
The rival bid for Oncor was disclosed on Friday by Energy Future’s biggest creditor, billionaire Paul Singer’s hedge fund Elliott Management Corp. The identity of the bidder was not publicly announced, but Bloomberg News first reported on Saturday that Sempra was the mystery bidder, citing anonymous sources.
Berkshire Hathaway Energy, Buffett’s energy unit, has offered $9 billion in cash for Oncor, while the rival bid is for $9.3 billion, a lawyer for Elliott said on Friday.
The gap is pocket change for Berkshire, but Buffett pledged last Wednesday not to raise his offer.
“Paying extra is not the way he does business,” said Jim Shanahan, a senior analyst at Edward Jones & Co. with a “buy” rating on Berkshire. “He is willing to be patient and wait for opportunities. That’s what analysts expect, and that’s what investors expect.”
Berkshire did not respond to requests for comment, while Sempra and Elliott declined to comment.
Berkshire said on Friday that its bid had won support from key stakeholders, including the staff of the Public Utility Commission of Texas, the regulator that has to approve the sale of Oncor. The commission’s executive director, Brian Lloyd, has also praised Berkshire’s bid.
Berkshire has told the regulator it will accept “ringfencing” on its acquisition of Oncor, restricting its ability to extract cash from the company or add more debt to it. It is unclear whether Sempra could offer the same assurances.
“Berkshire Hathaway Energy has offered a positive, simple, straightforward deal that benefits Oncor and its customers,” Oncor CEO Bob Shapard said in a statement on Saturday.
Even if regulatory concerns trump price considerations, and Berkshire’s bid for Oncor prevails on Sunday over that of Sempra, a San Diego-based utility, the sale has to be approved on Monday by US bankruptcy judge Christopher Sontchi in Wilmington, Delaware.
Elliott has said it opposes the sale to Berkshire because it believes it undervalues Oncor, and has argued it owns enough of Energy Future’s debt to veto the deal. Elliott has also been trying to put together its own bid for $9.3 billion to buy Oncor.
Buffett is trying to end the two-year lull since announcing his last major acquisition, a $32.1 billion takeover of aircraft parts maker Precision Castparts Corp.
Complicating Buffett’s hunt for bargains are soaring stock market valuations and competition from private equity firms with a lot of funds to spend, as well as from companies with anemic earnings growth that are turning to acquisitions for a recovery in their fortunes.