Our involvement in the high-profile purchase of the majority of Texas’ largest electric utility Oncor by Sempra Energy has not only put us firmly on the map in the U.S. power M&A market, but it has also taken our relationship with the client to a whole new level.

The sale of the regulated electric transmission and distribution service provider had already attracted widespread national interest because, back in 2007, Oncor was the crown jewel of the Energy Future Holdings (EFH) acquisition of TXU Corp, the largest leveraged finance buyout in history.

The purchase was to prove a costly investment for the LBO sponsors, KKR, TPH and Goldman Sachs, because, just months later, the world financial crisis saw energy prices plummet, sending EFH into bankruptcy.

Finding a match

While Texas-based Oncor continued to operate unscathed, thanks mainly to the state regulator’s insistence that it was ring-fenced from outside debt as a stipulation of approving the LBO deal, the search for a new owner had been frustrating and drawn out.

M&A partner Michael Deyong explains: “We first got involved with Oncor when we represented a bid for the company by the Hunt Family in 2015.

“While our deal won the approval of debtors and the bankruptcy court, we hit a brick wall with the Texas regulator, the Public Utility Commission of Texas (PUCT), because its demands made the deal unviable for our client to proceed.”

When a later bid by Nextera Energy also failed to gain regulatory approval, Oncor was still waiting for a buyer in 2016 when Warren Buffett’s Berkshire Hathaway made an approach.

The offer was widely expected to succeed having won the approval of the bankruptcy court, the EFH debtors and major stakeholders and influencers across Texas.

Rapid response

Michael says: “With about three weeks to go until the bid was formally accepted, partner Tom Lauria got a call from Sempra’s then chief financial officer Jeff Martin asking if we would help them prepare and put a rival bid forward.

“Time was obviously extremely short, because we knew once Berkshire’s bid was accepted there would be a break-up fee for any rival bidder to pay if they broke the agreement.

“Sempra made it clear that such a fee would make the deal unworkable, so we had to work fast.”

Our team was co-led by partners Tom Lauria, Gregory Pryor, Christopher Shore and Eric Leicht, who were assisted by partners Matthew Brown, Michael Deyong, David Dreier, Daniel Hagan, Henrik Patel and Andrew Weisberg, and associates Adam Cieply, Jordan Kobb, Jason Woolmer and John Forbush.

Michael says: “The way we were able to prepare and submit a bid against such a tight deadline was impressive and I honestly do not think any other firm could have done it.

“Our ability to pull together a team so quickly, featuring top-class lawyers from M&A, Litigation and Bankruptcy across our New York and Miami offices, really played to our strengths.

“The fact we already had extensive knowledge of the transaction and had built close relationships with the stakeholders from the previous failed bid meant all the stars were perfectly aligned.”

Rival bid

Despite the obvious attraction of the Warren Buffett cash bid and its seemingly straightforward path to full approval, our team was able to convince the bankruptcy court and debtors that Sempra’s $9.45 billion offer was the better option and that it would win regulatory approval.

Michael says: “Our experience on the previous bid came in handy, because we had a much better understanding of what the regulator wanted and knew Sempra were happy to agree to their demands.”

The Sempra deal won approval in August 2017 and was closed six months later.

“Since then the relationship between the Firm and Sempra has flourished,” explains Tom Lauria. “It helped us build a really strong trust and bond with the Jeff Martin, who is the current chief executive, and other senior leaders at the client.”

Our close relationship was strengthened last year, when we helped Sempra and its fellow Oncor stakeholders to acquire utility company InfraREIT, ironically from the Hunt Family.

Michael says: “InfraREIT had been put up for auction, but it was a complex deal to do.

“We had to negotiate with InfraREIT and a conflicts committee and had to partner with the Hunts to set up a new utility in South Texas as part of the transaction, so it was a combination of a public merger, a private merger and complicated asset swap transaction, and a joint venture.”

Closing the deal

Despite the complexity of the deal, it was signed last autumn and closed this May. Further work with Sempra has already followed as it looks to expand its footprint in Texas, sell certain Latin American assets and has been working with Tom in connection with the bankruptcy of California’s largest utility firm, PG&E.

Michael comments: “The InfraREIT purchase is not only proof of our relationship with Sempra, but it is also the latest in a series of deals that have firmly put us on the map for power M&A transactions in the U.S. market.

“Last year, for example, we represented Calpine Corporation in its successful acquisition by a consortium led by Energy Capital Partners.”

In 2016 and 2017 we were ranked the No.1 Legal Advisor for energy, mining, oil and gas in the Americas by Mergermarket and, in 2017, we were named Restructuring Firm of the Year by both the International Financial Law Review and The M&A Advisor in 2017.