Elliott proposes $18.5 billion Oncor deal to top Buffett bid

By Jessica DiNapoli

(Reuters) - Elliott Management Corp, the largest creditor of the bankrupt parent of Oncor Electric Delivery Co, unveiled a plan on Monday to best Berkshire Hathaway Inc's deal for the Texas utility with a bid worth $18.5 billion, including debt.

Elliott revealed in documents published on its website it was unhappy with the recovery to some creditors under an $18.1 billion deal announced by billionaire Warren Buffett's Berkshire on Friday. The hedge fund believes its acquisition offer would result in a higher payout to debtholders.

New York-based Elliott's proposal to acquire Energy Future Holdings Corp calls for a complex conversion of its debt to equity and for an outside equity partner help finance the deal. Reuters first reported on Elliott exploring a bid for Oncor on Friday.

The $31 billion hedge fund's bid would be a rare challenge to Buffett, who avoids auctions for companies and has told his investors he does not like to participate in bidding wars.

Elliott, run by billionaire Paul Singer, also disclosed on Monday that it would keep in place a corporate "ringfencing" structure that would prevent additional debt from being added to Oncor, or too much cash being paid out as dividends.

Regulators in the utility's home state of Texas have demanded such a structure. That was the reason Florida utility NextEra Energy Inc's $18.7 billion deal for the utility collapsed earlier this year.

Berkshire Hathaway, on the other hand, has already reached an agreement on a consensual approval process with regulators, according to a statement from an advisor to Energy Future filed in bankruptcy court.

Oncor did not immediately comment on Elliott's letter, while Berkshire was not immediately available for comment. Elliott declined to comment.

Elliott's disclosures come after Energy Future late on Friday filed its new bankruptcy plan of reorganization. It proposed repaying the unsecured debt that Elliott holds at 18 cents on the dollar.

Should Elliott succeed in its offer for Energy Future its unsecured debt would have a recovery of 50 cents on the dollar, according to people familiar with the matter.

Elliott holds enough of the company's secured and unsecured debt to try to block the reorganization plan with Berkshire Hathaway, the people said.

Elliott, known for its aggressive tactics including a 12-year battle over sovereign debt in Argentina, may also pursue strategies including litigation to block the deal, the people said.

In a letter to the board of Energy Future dated July 5 and released on Monday, Elliott said it would support a deal with Berkshire or a third party if those bids exceeded the value proposed by the hedge fund.

"We fear that the Berkshire transaction does not provide such value," the hedge fund said in the letter.

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.

(Reporting By Jessica DiNapoli in New York; additional reporting by Aparajita Saxena in Bengaluru; Editing by Saumyadeb Chakrabarty and Meredith Mazzilli)