Oncor Electric Delivery Co. has become a battleground between Warren Buffett and Paul Singer. Elliott Management Corp. is set for a takeover battle with Buffett’s Berkshire Hathaway if he does not offer a better offer for Oncor Electric. Here are three reasons why Singer is not happy with the offer.
Failure to Meet Creditor Expectations
Singer’s hedge fund is one of the biggest creditors of the parent of Oncor Electric, now bankrupt. Berkshire offered to take over the company for $17.5 billion on July 7. Singer’s firm believes that the company is valued at $18.5 billion, including debt. The reorganized parent entity, Energy Future Holdings Corp. is estimated at $9.3 billion. The deal by Berkshire does not maximize value for the creditors of the company.
Singer Wants To Be a Part of Negotiations
In a letter dated July 5, the hedge fund has urged the manager of Energy Future to ensure that Elliott becomes a part of the deal negotiations. The firm wants to be a part of alternative deals and wants to stay in the loop regarding the Berkshire deal. Elliott has suggested that Energy Future must follow the suggestions made in the letter. Failing this, it could bear ‘unnecessary litigation costs and expenses.’
Berkshire Has Offered a Lower Bid for Oncor
Berkshire’s energy unit is not the first company to try a takeover of Oncor. Energy Future’s bankruptcy in 2014 could end with a significant deal and Elliott; its biggest creditor is not willing to leave any stones unturned to get a great deal. Energy Future has already declined three bids from NextEra Energy Inc. to buy the company. The last offered bid was for $18.4 billion. Before this Hunt Consolidated Inc. also tried to buy the company but the offer was canceled.
Berkshire’s bid is only $17.5 billion, $1 billion less than Elliott’s valuation. It believes that the company should not consider the Berkshire deal as it is lesser than NextEra, which has already been declined. In the letter to Energy Future, Elliott mentioned, “While we are entirely supportive of a transaction with Berkshire or another third party if the value provided by that transaction exceeds the value being proposed by Elliott, we fear that the Berkshire deal does not provide such value.”
Buffett has mentioned earlier that he does not like engaging in bidding wars. Elliott has proposed ring-fencing so that too much cash is not paid as dividends. Texas regulators have demanded such a structure to be put in place.