SRE: Oncor acquisition is strategically astute and appears financially sound

Conference call reveals … multiple paid and that SRE would issue some equity to fund the transaction: It was revealed by management that it estimates having valued Oncor at some XXx 2018E AEBITDA and some XXx 20XXE adjusted net income. This includes SRE’s estimate of the impact of …. The financial data is expected to be updated just before or after closing the transaction in ….

· Oncor’s 2018E AEBITDA and Net Income based on offering price for EFHC: Based on the multiple that SRE believes it would pay, if successful, Oncor’s implied … about $XXXMM and $XXXMM, respectively

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SRE: We like strategic direction of Oncor acquisition; not sure of financing

Strategically, we believe this is a good deal for SRE’s investors: The five year $XXXB investment program at Oncor should be accretive to SRE’s earnings and help raise the value of SRE. More than anything else, we believe that SRE paid …, but not be strapped with the … “Winner’s Curse,” in our opinion. However, SRE’s choice to finance part of the deal with …, in our opinion, based on some basic math.

Deal terms: Although details were scant, it seems SRE would buy 100% of Oncor’s ultimate parent, Energy Future Holdings Corp. (EFHC), for $XXXB in cash, resulting in an EV for Oncor of about $XXXB.

Third-party investor(s) for risk mitigation:

Based on some simple calculations, we believe that SRE paid just … for the deal:
SRE’s ultimate ownership: Sale to a … would leave … with total equity interest in … and, therefore, a … (… an XX% equity interest in Oncor).
Depending on the tax rate at EFHC, … to ROE:
Oncor’s CAGR in net income from … for SRE’s 2018 …:

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