A rare example of a challenge to a big deal from Warren Buffett and his Berkshire Hathaway group has emerged.
As suggested on Monday, Elliott Advisers, the US based hedge and vulture fund is trying to force Berkshire Hathaway to pay more for the 80% of Texas power distributor, Oncor Warren Buffett’s company agreed to buy on Friday.
Berkshire offered to pay $US9 billion in cash and take on the same amount of debt for the controlling stake in Oncor, which is part of the Energy Futures Holdings (EFH), a bankrupt Texas-based power generation and distribution group that was the biggest private equity buyout in 200. It collapsed several years later under the weight of its huge debts.
The bid for the 80% implies a full value for Oncor of around $US11.25 billion including the other 20% which is owned by a group including a company called Borealis, which is the infrastructure subsidiary of Canadian pension fund Omers, and GIC, Singapore’s sovereign wealth fund.
Elliott Management, part of the Elliott Advisers group, said on Monday that it was prepared to pay $US9.3 billion in cash for a total price of $US18.5 billion.
Elliott, which is controlled by Paul Singer (who is trying to make BHP’s life miserable) claimed the deal Berkshire agreed last week failed to maximise creditors’ interests and that it was ready to launch a rival bid offer.
Elliott says under its plan it would convert its debt into equity and inject fresh cash into EFH through a third party partnership. That move would allow it to take control of Oncor, which is the major asset of the bankrupt company.
"While we are entirely supportive of a transaction with Berkshire or another third party in the event that the value provided by that transaction exceeds the value being proposed by Elliott, we fear that the Berkshire transaction does not provide such value,” the fund said in a letter to the board of EFH dated July 5 and published on Monday.
Elliott’s says it has held talks with a number of potential partners, including rival energy companies, infrastructure funds and high net worth individuals.
Berkshire will either lift the price, or walk away. Walking away would leave Elliott to follow on from its claims, something it will be unwilling to do. It has $US2.9 billion in debt issued by EFH and that fell nearly 30% in value last week on news of the Berkshire offer.
