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Bankruptcy fight over Oncor to test Warren Buffett's discipline

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By Jonathan Stempel and Jessica DiNapoli

Aug 20 (Reuters) - Warren Buffett takes pride in naming his price to buy a company, and not paying the nickel more.

But the largest Circumstance. S. natural gas distribution utility, a good 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 Tx utility Energy Future Holdings can meet later on Sunday to decide regardless of whether to sell its crown jewel, strength transmission company Oncor, to Buffett's Berkshire Hathaway Inc or take an opposing bid from Sempra Energy, a person familiar with the private deliberations said on condition associated with anonymity.

The rival bid intended for Oncor was disclosed on Friday by Energy Future's biggest creditor, billionaire Paul Singer's hedge fund Elliott Management Corp. The identification of the bidder was not publicly introduced, but Bloomberg News first documented 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. a few billion, a lawyer for Elliott mentioned on Friday.

The gap is pocket change with regard to Berkshire, but Buffett pledged final Wednesday not to raise his present.

"Paying extra is not the way he does business, " stated Jim Shanahan, a senior expert at Edward Jones & Co with a "buy" rating on Berkshire. "He is willing to be patient plus wait for opportunities. That's what analysts expect, and that's what investors anticipate. "

Berkshire did not respond to requests for comment, whilst Sempra and Elliott declined in order to comment.

Berkshire said on Friday that its bet had won support from important stakeholders, including the staff of the Public Utility Commission of Texas, the regulator that has to approve the sale of Oncor. The commission's professional director, installation electrique base tension Lyon 8 Brian Lloyd, has also acknowledged Berkshire's bid.

Berkshire has informed the regulator it will accept "ringfencing" on its acquisition of Oncor, limiting its ability to extract cash from your 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 advantages Oncor and its customers, " Oncor CEO Bob Shapard said inside a statement on Saturday.

Even in the event that regulatory concerns trump price considerations, and Berkshire's bid for Oncor prevails on Sunday over those of Sempra, a San Diego-based electricity, the sale has to be approved on Monday by U. S. Personal bankruptcy Judge Christopher Sontchi in Wilmington, Delaware.

Elliott has said it opposes the sale to Berkshire since 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 bid for $9. 3 billion to buy Oncor.

TAKEOVER LULL

Buffett, 86, is trying to end the two-year lull given that announcing his last major acquire, a $32. 1 billion takeover of aircraft parts maker Precision Castparts Corp.

Many analysts at the time said that price looked relatively costly by Berkshire's standards.

Complicating Buffett's hunt for bargains are soaring stock market valuations and competition from private equity finance firms with a lot of funds to spend, as well as from companies with anemic earnings growth that are turning to purchases for a recovery in their fortunes.

Buffett's Omaha, Nebraska-based conglomerate, whose over 90 businesses include auto insurance company Geico and railroad BNSF, ended June with close to $100 billion dollars of cash and equivalents.

That is up $27 billion in the last 12 months, and five times Buffett's $20 billion stated target. website

Some analysts say idle cash is also considering on Berkshire's operating profit, which has dropped for three straight quarters.

"Buffett likes to achieve 11 percent earnings, " and low-yielding cash might deprive Berkshire of billions of dollars annually, said Robert Miles, a writer of books about Buffett.

But George Morgan, a finance teacher at the University of Nebraska Omaha, said that "as far as cash being a drag on performance, Warren might say no . Just because you're inside a store doesn't mean you need to purchase something. "

Buffett has in 2017 used some Berkshire cash to be one of Apple Inc's largest shareholders, and shore up Canadian loan provider Home Capital Group Inc's finances.

But he never faced the need to revisit his original deal once he clinched this.

ONE-PRICE GUY

In its annual reports, Berkshire tells investors "we don't participate in auctions, " using italics for emphasis.

"I'm a 'one-price' guy, " Buffett wrote in the February 2008 shareholder letter.

At Berkshire's annual meeting in May, Buffett said he would happily do a "very, very big deal, inches including with Brazilian investment company 3G Capital, which together with Berkshire controls the food company Kraft Heinz Co.

Earlier this year, European food and consumer goods conglomerate Unilever Plc snubbed a takeover approach simply by Kraft Heinz. Buffett, true to type, backed down.

If Berkshire lost Oncor, it might receive a consolation prize, a $270 million breakup fee.

Berkshire accepted a $175 mil fee when Constellation Energy Group Inc terminated its $4. 7 billion takeover in 2008, and took an investment from Electricite sobre France SA.

"Walking away from Oncor would reinforce Buffett's reputation that will once he determines a fair price, that's the price, or there's no deal, " Shanahan said.

Deviations are rare.

When Berkshire in 2000 bought three-fourths of MidAmerican Energy, as Berkshire Hathaway Energy had been then known, Buffett upped their original $35 per share offer to $35. 05.

MidAmerican's brokers "caught me in a moment of weakness, " Buffett wrote in the 2008 letter. "I explained, they could tell their client they had wrung the last nickel out of me. "

(Reporting by Jonathan Stempel and Jessica DiNapoli in New York; Additional revealing by Greg Roumeliotis in Ny; Editing by Lisa Shumaker)
posté Nov 17 dans la catégorie Vente - Achat - Marketing par PhilRummel4 (120 points)


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