Infrareit Agrees to be Acquired by Oncor in Deal Valued at Approximately $1.275 Billion

Source Press Release
Company Sempra Energy 
Tags Corporate Deals, Deals, Refining & Marketing Activities
Date October 18, 2018

InfraREIT, Inc. (NYSE: HIFR) ("InfraREIT" or the "Company") today announced that it has entered into a definitive agreement to be acquired by Oncor Electric Delivery Company LLC ("Oncor") for $21.00 per share in cash, valued at approximately $1.275 billion, plus the assumption of approximately $940 million of InfraREIT's net debt, as of June 30, 2018.

Transaction Highlights:

  • InfraREIT stockholders to receive $21.00 in cash for each share of InfraREIT common stock, an 18 percent premium to InfraREIT's unaffected share price of $17.79 on January 12, 2018;
  • InfraREIT expects to continue paying regular quarterly dividends of $0.25 per share through the closing of the transaction;
  • Transaction benefits all stakeholders through the acquisition of InfraREIT by Oncor, the largest electric utility in Texas; and
  • After receiving all required approvals, the transaction is expected to close by mid-2019.

As a condition to Oncor's acquisition of InfraREIT, InfraREIT's subsidiary, Sharyland Distribution & Transmission Services, L.L.C. ("SDTS"), and Oncor also signed a definitive agreement with SDTS's tenant, Sharyland Utilities, L.P. ("Sharyland") to exchange, immediately prior to Oncor's acquisition, SDTS's South Texas assets for Sharyland's Golden Spread Electric Cooperative interconnection ("Golden Spread Project") located in the Texas Panhandle, along with certain development projects in the Texas Panhandle and South Plains regions, including the Lubbock Power & Light interconnection ("LP&L Project").

Under the terms of the agreement with Oncor, InfraREIT's stockholders will receive $21.00 per share in cash upon the closing of the transaction.  The $21.00 per share price represents an 18 percent premium to InfraREIT's unaffected share price of $17.79 on January 12, 2018, the last trading day prior to the time Hunt Consolidated, Inc. ("Hunt") filed an amendment to its Schedule 13D with the United States Securities and Exchange Commission ("SEC") regarding its consideration of alternative arrangements between Hunt and the Company.

InfraREIT expects to continue paying regular quarterly dividends of $0.25 per share through the closing of the transaction, including a pro-rated dividend for any partial quarter prior to the closing."

This transaction is the result of a comprehensive review of De-REIT alternatives," said David A. Campbell, Chief Executive Office of InfraREIT.  "We believe the acquisition by Oncor, a highly-regarded utility in Texas and the operator of the largest transmission and distribution system in the state, is in the best interest of our stockholders and benefits all stakeholders."

The transaction, which was unanimously approved by InfraREIT's Board of Directors and Conflicts Committee, is subject to regulatory and stockholder approvals and other customary closing conditions.  The transaction is expected to close by mid-2019 and is not subject to any financing conditions.

The agreement with Oncor includes a "go-shop" provision that allows the Conflicts Committee and its advisors to actively solicit and negotiate with other potential acquirers to determine whether they are interested in making a proposal to acquire InfraREIT.  Accordingly, InfraREIT will solicit competing acquisition proposals through November 17, 2018.

Transaction Details
Asset Exchange:
Under the asset exchange agreement with Sharyland and Oncor, SDTS will exchange its South Texas assets for Sharyland's Golden Spread Project and other related assets.  The difference between the net book value of the exchanged assets will be paid in cash at closing.  Upon closing of the asset exchange and the acquisition of InfraREIT, Oncor will own all of InfraREIT's existing transmission system excluding the South Texas assets and will also own the Golden Spread and LP&L Projects currently owned by Sharyland. Following the asset exchange, Sharyland will operate as an independent utility in South Texas. Additionally, SDTS and Sharyland have agreed to terminate their existing leases in connection with the asset exchange. 

Oncor Merger:
After the completion of the asset exchange transaction with Sharyland, Oncor will acquire InfraREIT for $21.00 per share in cash.  Upon the close of the transaction, Oncor will own and operate all of SDTS's post-asset exchange assets, including the Golden Spread and LP&L Projects.  Oncor plans to fund its acquisition of InfraREIT with capital contributions from its owners Sempra Energy and Texas Transmission Investment LLC.

The asset exchange and Oncor merger are mutually dependent on one another and neither will become effective without the closing of the other.

Arrangements with Hunt:
InfraREIT is externally managed by Hunt Utility Services, LLC ("Hunt Manager") under its management agreement, which will be terminated upon the closing of the transactions.  Under the management agreement, Hunt Manager is entitled to the payment of a termination fee upon the termination or non-renewal of the management agreement.  The termination of the management agreement automatically triggers the termination of the development agreement between InfraREIT and Hunt.  InfraREIT has agreed to pay Hunt approximately $40.5 million at the closing of the transactions to terminate the management agreement, development agreement, leases with Sharyland, and all other existing agreements between InfraREIT or its subsidiaries with Hunt, Sharyland or their affiliates.  That amount is consistent with the termination fee that is contractually required under the management agreement.

Agreements among Hunt, Oncor and Sempra Energy:
Concurrently with the execution of the merger agreement and the asset exchange agreement, Sharyland and Sempra Energy have entered into an agreement in which  Sempra Energy will purchase a 50 percent limited partnership interest in Sharyland Holdings LP ("Sharyland Holdings"), which will own a 100 percent interest in Sharyland.  The closing of  Sempra Energy's purchase is a requirement of the asset exchange agreement between SDTS and Sharyland.  Additionally, under a separate agreement with Sharyland, Oncor has agreed to operate and maintain all of Sharyland's assets following the closing of the transactions.

Solicitation of Additional Offers:
The agreement with Oncor includes a "go-shop" provision that allows the Conflicts Committee and its advisors to actively solicit and negotiate with other potential acquirers to determine whether they are interested in making a proposal to acquire InfraREIT.  Accordingly, InfraREIT will solicit competing acquisition proposals through November 17, 2018.  If the Conflicts Committee and Board of Directors accept a superior proposal prior to December 27, 2018 that was received during the go-shop period, then InfraREIT would pay a termination fee to Oncor of approximately $19 million.  If the Conflicts Committee and Board of Directors accept an unsolicited superior proposal received after the go-shop period, InfraREIT would be required to pay a termination fee to Oncor of approximately $45 million.  There can be no assurance that the go-shop process set forth in the merger agreement will result in a superior proposal.  InfraREIT does not intend to disclose developments with respect to the solicitation process or any competing proposals that may be received unless and until the Conflicts Committee and the Board of Directors have made a decision with respect to any potential superior proposal.

Transaction Approvals and Closing Conditions
The closing of the transactions is dependent upon and will be subject to several closing conditions, including:

  • Public Utility Commission of Texas ("PUCT") approval of the transactions, including:
    • Exchange of assets with Sharyland;
    • Acquisition of InfraREIT by Oncor; and
    • Sempra Energy's indirect 50 percent ownership of Sharyland Holdings
  • Other necessary regulatory approvals, including Federal Energy Regulatory Commission approval, Hart-Scott-Rodino clearance and the Committee on Foreign Investment in the United States clearance;
  • Stockholder approval;
  • Certain lender consents; and
  • Other customary closing conditions.

Under the definitive agreements, SDTS, Sharyland and Oncor are required to file a Sale-Transfer-Merger application with the PUCT no later than November 30, 2018.  A special meeting of InfraREIT's stockholders will be held following the filing of the definitive proxy statement with the SEC and subsequent mailing to its stockholders, which is expected to be filed by December 10, 2018.  The transactions are expected to close by mid-2019.

Advisors:
Evercore is acting as financial advisor to the InfraREIT Conflicts Committee and Hunton Andrews Kurth LLP is acting as legal advisor to the InfraREIT Conflicts Committee in the transaction.  Additionally, Gibson, Dunn & Crutcher LLP is acting as legal advisor to InfraREIT in the transaction.  Additional information regarding the transaction can be found in the Current Report on Form 8-K filed today with the SEC and on InfraREIT's Web site, , under the "SEC Filing" tab of the "Investor Relations" section.

Source: EvaluateEnergy® ©2019 EvaluateEnergy Ltd