Sempra and Oncor agree merger

BY Richard Summerfield

Sempra Energy is to acquire Oncor Electric Delivery Co for $18.8bn, including existing, outstanding debt of around $9.45bn, the companies have announced in a statement.

Sempra will pay cash for the company and the deal is expected to be financed by a combination of Sempra's own debt and equity, third-party equity and $3bn of expected investment-grade debt.

"Both Sempra Energy and Oncor share more than 100 years of experience operating utilities that deliver safe, reliable energy to millions of customers," said Debra L. Reed, chairman, president and CEO of Sempra Energy. "With its strong management team and long, distinguished history as Texas' leading electric provider, Oncor is an excellent strategic fit for our portfolio of utility and energy infrastructure businesses. We believe our agreement with Energy Future will help ensure that Texas utility customers continue to receive the outstanding electric service they have come to expect from Oncor and provide stability to Oncor's nearly 4000 employees."

Elliott Management is the largest creditor of bankrupt Energy Future Holdings, the majority owner of Oncor, and Elliott have backed Sempra’s bid to take over the company, spurning a rival takeover attempt by Warren Buffett. In July, Mr Buffett’s Berkshire Hathaway made a rival $18bn offer for Oncor which was rejected by the company, as well as Elliott, who argued that the offer was too low and not in creditors’ interest. 

Under the terms of the deal, Sempra Energy has committed to support Oncor's plan to invest $7.5bn of capital over a five-year period to expand and reinforce its transmission and distribution network.

Once the deal has been completed, Bob Shapard, Oncor's CEO, will become executive chairman of the Oncor board of directors and Allen Nye, currently Oncor's general counsel, will succeed Mr Shapard as Oncor's CEO. Both are set to serve on the Oncor board, which will consist of 13 directors, including seven independent directors from Texas, two from existing equity holders and two from the new Sempra Energy-led holding company.

Elliott had tried to put together its own $9.3bn bid to buy Oncor but ultimately decided to back the Sempra deal, which a spokesman said "provides substantially greater recoveries to all creditors of Energy Future than the proposed Berkshire transaction." Elliott acquired a specific class of debt worth about $60m from Fidelity Investments that gave it the power to block Berkshire’s offer.

News: Sempra Energy to buy Oncor for $9.45 billion in blow to Berkshire

Source: http://www.reuters.com/article/us-oncor-m-a-sempraenergy-idUSKCN1B1041

Knight Energy files for Chapter 11 as part of restructuring exploration

BY Fraser Tennant

In an attempt to improve its balance sheet and liquidity position, Knight Energy Holdings, LLC and its operating affiliates (including Knight Oil Tools) have voluntarily filed for Chapter 11, as well as entering into a financial restructuring support agreement.

The agreement, made in the US Bankruptcy Court for the Western District of Louisiana, Lafayette Division, is supported by secured lenders and will improve Knight Energy’s balance sheet by equitising over $175m of its existing obligations and provide for significant new capital to substantially boost its liquidity position through an exit financing facility.

Knight Energy has stated that it will continue to operate in the ordinary course of business during the Chapter 11 and restructuring proceedings and has filed various ‘first day’ motions seeking approval of relief – a $14.5m debtor-in-possession (DIP) financing facility – so as to operate with minimal impact or interruption to its valued employees, customers, vendors and other important parties.

One of the largest, privately-owned oilfield rental tool companies in the world, Knight Energy supplies a wide offering of rental equipment and services for drilling, completion and well control activities - serving a diverse base of oil and natural gas exploration & production (E&P) operators. The company was founded in 1972 by Eddy Knight and is owned today by second-generation family members.

“Like many leading oil and gas companies, we have been affected by the ongoing downturn in the market,” said the Knight family in a statement. “The company has spent considerable time since then focusing on how to best serve our customers, employees, and to maintain strong relations with our vendors and employees. In order to best position our company for the future, we felt that a financial restructuring was necessary and worked with our stakeholders to achieve a consensual plan to deleverage the company and position Knight and our employees for success.”

Heller Draper is acting as lead restructuring counsel during the Chapter 11 restructuring proceedings, with a representative from Opportune serving as Knight Energy’s chief restructuring officer. Farlie Turner has served as Knight Energy’s financial adviser.

Confident that requested relief will be granted and the company will have ample liquidity to support the business during the Chapter 11 and restructuring process, the Knight family concluded: “Together we have developed a long term strategic plan that will allow Knight to continue to be a market leader.”

News: Knight Oil Tools’ Parent Company Files For Bankruptcy

Tough time ahead for financial services

BY Richard Summerfield

As higher inflation impacts UK households, and as a decline in real wage growth continues to take hold, the financial services sector is in line for a tough 2018, according to the latest EY Item Club Outlook for Financial Services.

The report notes that inflation will peak at around 3 percent in the second half of the year, while real household disposable incomes are forecast to decline by 0.2 percent in 2017 - the first drop since 2013. This fall in household income is likely to decrease the demand for mortgages and other 'big ticket' items and general insurance in 2018.

The combination of higher inflation and decreased real earnings will likely lead to an increase in consumer credit next year, as households look to compensate for any shortfall with increased borrowing. The amount of consumer loans will grow from £204bn in 2017 to £206bn in 2018 before rising to £212bn in 2019 and £218bn in 2020, according to the report.

EY UK financial services managing partner Omar Ali said: "Even modelling for a Brexit transitional deal, the outlook for 2018 remains tough for financial services as the impact of higher inflation is felt by households up and down the country. Business lending, mortgage lending and general insurance look set to be the hardest hit. Despite warnings from the Bank of England and some high-street lenders, the only type of lending that is expected to grow in 2018 is consumer credit."

Indeed, the pressures applied to consumer spending in 2018 could dramatically affect the UK’s short term economic prospects. With consumer spending accounting for 60 percent of the UK’s GDP, any significant reduction in consumer spending could have a knock on effort on GDP. With pay growth expected to remain subdued in the short term at least, real earnings are expected to fall by 0.5 percent this year.

The report predicts business lending will rise to £435bn by 2020, but only if the UK is able to strike a transitional deal during Brexit negotiations with the EU. Mortgage lending, however, will fall to £1.1 trillion in 2018, compared to a forecast £1.2trillion in 2017, though it is expected to climb slightly in 2019 and 2020.

Report: EY ITEM Club Outlook for Financial Services

Vantiv and Worldpay in $10.4bn merger

BY Richard Summerfield

US credit card payment processing company Vantiv Inc has agreed to acquire its UK rival Worldpay in a deal worth $10.4bn, a move which will create a $29bn global payments giant.

Under the terms of the deal, Vantiv shareholders will own 57 percent of the newly combined group while Worldpay investors will hold the remaining 43 percent. Vantiv has offered 55 pence in cash, 0.0672 of a new Vantiv share, an interim dividend of 0.8 pence per Worldpay share and a special 4.2 pence dividend, for WorldPay.

The combined company will be led by Vantiv CEO Charles Drucker as executive chairman and co-CEO. Current Worldpay CEO Philip Jansen will be co-CEO of the joint group. Vantiv CFO Stephanie Ferris, will continue as CFO of the combined group. The board will consist of five Worldpay and eight Vantiv directors.

“Our combined company will have unparalleled scale, a comprehensive suite of solutions, and the worldwide reach to make us the payments industry global partner of choice," said Mr Drucker in a statement announcing the deal.

“The growth of e-commerce and the way consumers expect to transact is increasing complexity for businesses around the world,” Mr Jansen said, adding that the “combination of scale, innovation, technology and global presence will mean that we can offer more payment solutions to businesses, whether large or small, global or local".

Vantiv expects the deal to result in annual recurring pretax cost synergies of about $200m by the end of the third year following completion of the merger. It expects to incur one-off integration and restructuring costs of about $330m, most by the end of the second year.

The two firms initially announced their intention to merge in July, however given the scale and complexity of the deal, it has taken a number of weeks for management of both companies to reach an agreement on certain conditions, including guaranteeing a London listing for the newly merged company.

The deal is the latest in a number of mergers in the evolving payments processing industry. Consumer trends are changing, and as more people turn away from cash transactions and utilise smart devices and mobile payments in the future, the industry is likely to look very different in the coming years.

News: U.S. card firm Vantiv clinches $10 billion deal to buy Worldpay

ROI boosted by mature ethics & compliance programmes, new survey finds

BY Fraser Tennant

Companies with mature or advanced ethics & compliance training programmes achieve greater return on investment (ROI) as well as significant risk mitigation and culture change, according to a new survey by NAVEX Global.

In its ‘2017 Ethics & Compliance Training Benchmark Report’, NAVEX reveals that 48 percent of the 900 respondents surveyed (over half of whom were senior managers or directors) said their training programmes were maturing – meaning they have a basic plan for the year that covers risk and role-based topic assignments.

A further 10 percent of respondents said their programmes were advanced – meaning they have a sophisticated multiyear training plan that covers a variety of topics assigned to specific audiences based on need and risk profile that includes live and e-learning, short-form and long-form courses and a variety of engaging formats.

The report also found that larger companies were more likely to have mature or advanced programmes.

“More than half of our respondents classified their training programmes as at least mature and said they are better able to determine and then show the linkage between programme maturity and training objectives to executives,” said Ingrid Fredeen, NAVEX Global's vice president of online learning content and the author of the report. “Being able to sharpen the business case for training is important for compliance programmes hoping to secure more funding at this critical time, when a scandal or cyber attack can have swift and sweeping negative effects on an organisation and its brand.”

Additional report findings include: (i) companies define a culture of ethics and respect in various ways, with the two most common definitions highlighting a culture that creates a workplace that encourages people to speak openly and aligns with regulatory requirements; (ii) just 41 percent of respondents said they provide training on cyber security; and (iii) just 43 percent provide training on speaking up and reporting/anti-retaliation.

However, echoing previous year’s results, training at the highest levels continues to be a potential problem spot, with 36 percent of respondents stating their companies do not provide ethics and compliance training to their boards. A further 21 percent said they did not know whether they provided training.

Ms Freeden concluded: “People are thinking differently about the need for training programmes. Some companies could be wondering what is under a rock today that could go public tomorrow.”

Report: 2017 Ethics & Compliance Training Benchmark Report