8-KMaterial AgreementsExhibits & Filings

SEMPRA 8-K Report, Material Agreement (Jul 10, 2007)

Filed July 10, 2007For Securities:SRESREA

Summary

Sempra Energy (SRE) announced on July 9, 2007, the formation of a material definitive agreement to establish a joint venture named RBS Sempra Commodities LLP with The Royal Bank of Scotland plc (RBS). This partnership is designed to acquire and operate Sempra Energy's commodity-marketing businesses. Sempra Energy will contribute $1.3 billion and RBS will contribute $1.355 billion in initial equity investments, with RBS providing additional funding for ongoing operations. The partnership's governance will be controlled by RBS, with four directors appointed by RBS and three by Sempra Energy, although Sempra Energy retains veto rights over significant business decisions. The profit and loss allocation is structured with a preferred return for both parties, followed by a tiered profit-sharing arrangement that heavily favors Sempra Energy on the initial $500 million in pre-tax income and then shifts to a 70%/30% split in favor of RBS for remaining income. Losses will be shared equally. The agreement includes non-compete clauses for both parties for four years, limitations on the sale of partnership interests for the same period, and specific rights for Sempra Energy to sell its interest to RBS, including arbitration for pricing, with caps on valuation. The transaction is expected to close by the end of 2007, subject to regulatory approvals.

Key Highlights

  • 1Formation of RBS Sempra Commodities LLP, a joint venture with The Royal Bank of Scotland plc, to acquire Sempra Energy's commodity-marketing businesses.
  • 2Sempra Energy and RBS will make initial equity investments of $1.3 billion and $1.355 billion, respectively. RBS will fund ongoing operational expenses.
  • 3RBS will have majority control over the partnership's board with 4 directors vs. Sempra Energy's 3, but Sempra Energy has veto rights on key strategic decisions.
  • 4Profit allocation involves a preferred 15% return for both parties, then a tiered split (Sempra: 70%/30% on first $500M, RBS: 70%/30% thereafter). Losses are shared equally.
  • 5Four-year non-compete clauses are in effect for both Sempra Energy and RBS regarding the partnership's core business activities.
  • 6Restrictions on selling partnership interests for four years, with specific rights for Sempra Energy to sell to RBS, including binding arbitration for pricing with valuation caps.
  • 7Closing is anticipated before the end of 2007, contingent upon customary conditions and approvals from U.S. and UK regulatory bodies.

Frequently Asked Questions

The primary purpose is for Sempra Energy and The Royal Bank of Scotland plc (RBS) to form a partnership that will purchase and operate Sempra Energy's commodity-marketing businesses.

Sempra Energy will make an initial equity investment of $1.3 billion, and RBS will contribute $1.355 billion. RBS is also responsible for providing any additional funding needed for the ongoing operating expenses of the partnership's businesses.

Profits will be distributed with a preferred 15% return on adjusted equity capital for Sempra Energy and a preferred 15% return for RBS on certain excess capital. Following these preferred returns, Sempra Energy receives 70% of the next $500 million in pre-tax income, and RBS receives 30%. Any remaining pre-tax income is split 30% for Sempra Energy and 70% for RBS. Losses are shared equally between Sempra Energy and RBS.

Yes, for a period of four years following the closing, both RBS and Sempra Energy are subject to limitations on their ability to compete with the partnership's core business activities. Additionally, neither party can sell or assign their interest in the partnership for four years. After this period, Sempra Energy has specific rights to sell its interest to RBS, including arbitration for pricing if an agreement cannot be reached.