(Reuters) – Bankrupt Texas utility Energy Future Holdings will abandon a deal to sell power transmission company Oncor to Warren Buffett’s Berkshire Hathaway Inc (BRKa.N) for $9 billion and will accept a $9.45 billion bid for Oncor by Sempra Energy (SRE.N) instead, people familiar with the matter said.
The development represents a rare blow for Buffett, who avoids bidding wars for companies and had swooped in two months ago to buy Oncor after two previous attempts by Energy Future to sell it were blocked by Texas regulators.
It is also a defeat for Greg Abel, the 55-year-old chief executive of Berkshire’s energy unit who many investors consider a top candidate to eventually succeed Buffett, 86, at the Omaha, Nebraska-based parent company’s helm.
Energy Future’s board decided to make the switch on Sunday after Sempra also offered assurances it could get its acquisition of Oncor approved by the Public Utility Commission of Texas (PUCT), as well as a U.S. bankruptcy judge, the sources said.
Berkshire had issued a statement last week to say it would not be raising its offer for Oncor. However, in response to Sempra’s bid, Berkshire offered to allow Energy Future to keep an Oncor dividend, but that proposal was not enough to bridge the gap in price, the sources added.
The sources asked not to be identified because the decision has not yet been officially announced. Sempra, Oncor and Berkshire did not immediately respond to requests for comment.
Hedge fund Elliott Management Corp, which is Energy Future’s biggest creditor, had opposed the sale to Berkshire, arguing it undervalued Oncor and threatening to veto the deal. Elliott had also been trying to put together its own bid for $9.3 billion to buy Oncor.
Elliott has now indicated it will support Oncor’s sale to Sempra, one of the sources said. Elliott did not immediately respond to a request for comment
Berkshire had told the PUCT it would accept “ringfencing” on its acquisition of Oncor, restricting its ability to extract cash from the company or add more debt to it. Sempra has now indicated it will also accept some form of ringfencing, according to the sources.
Dallas-based Oncor delivers power to more than 3.4 million homes and businesses through roughly 122,000 miles (196,000 km) of transmission and distribution lines.
Based in San Diego, Sempra owns and operates electric and gas utilities in the United Sates and South America, including San Diego Gas & Electric and SoCalGas in California, Luz del Sur in Peru, and Chilquinta Energía in Chile. It has a market capitalization of $29.2 billion.
Sempra is no stranger to Texas. Earlier this year, it signed a memorandum of understanding with Korea Gas Corp for the development of a liquefied natural gas liquefaction project in Port Arthur, Texas.
Earlier this year, the PUCT shot down the sale of Oncor to NextEra Energy Inc (NEE.N) because it considered the proposed financial structure too risky for ratepayers.
A separate plan to sell Oncor to a group of creditors and investors led by privately held Hunt Consolidated Inc of Texas collapsed in 2016, after hitting obstacles at the regulator.
Reporting by Greg Roumeliotis in New York; Editing by Mary Milliken and Richard Pullin