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Buffet's Oncor Failure Is No Failure at All


Buffet's Oncor Failure Is No Failure at All

Recently, Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) lost its bid to buy Oncor, Texas' largest regulated utility. Oncor is part of Energy Future Holdings, which was formed by KKR & Co. (NYSE: KKR), TPG Capital, and Goldman Sachs (NYSE: GS) Capital Partners in the largest leveraged buyout in history in 2007. When natural gas prices plummetted due to the shale revolution, EFH was unable to meet its debt obligations, and EFH has been looking to sell Oncor in bankruptcy to pay off its creditors.  

Reading headlines such as, "Buffett's Latest Dealmaking Flop," and "Buffett Encounters Rare Miss," might make some Berkshire investors wonder if the Oracle of Omaha has lost his touch. Adding insult to injury, the deal fell through too quickly for Berkshire to qualify for its $270 million breakup fee, so Buffett and Berkshire will walk away with nothing. 

In this light, it might seem strange that I think Berkshire investors should be encouraged. Certainly, Buffett and Berkshire would have loved to have bought Oncor for $9 billion ($18.2 billion with debt) to add to the Berkshire Hathaway Energy platform.  So why wouldn't Buffett pony up a mere 5% more for the prized asset? 

Berkshire made its offer for Oncor in July, after Texas regulators had rejected a previous $18.7 billion bid by NextEra Energy (NYSE: NEE). The Texas Public Utilities Commission objected to NextEra's unwillingness to give Oncor an independent board, among other issues. Berkshire came back with its lower offer in July, along with 47 points of assurance to the PUC.  

Image source: Getty Images.

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Source: Fool.com

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