After months of rumors about a possible sale, publicly traded utility El Paso Electric Co. announced Monday that it agreed to be taken private by Infrastructure Investments Fund – an investment vehicle advised by J.P. Morgan Investment Management Inc. – for $4.3 billion, including debt.
Baker Botts counseled El Paso Electric with a team led in part by corporate partner Tim Taylor, senior associate Carina Antweil and associates Stephen Noh and Emmie Proctor, all of Houston. Houston partner Rob Fowler and associate Gabriela Alvarez pitched in on employee benefits and executive compensation matters.
Baker Botts has counseled El Paso Electric in the past, including on a senior notes offering this past summer in the amount of $190 million (including Taylor, Antweil and Proctor).
Skadden represented Infrastructure Investments Fund, known as IIF, but no one in the firm’s Houston office.
El Paso Electric’s general counsel is Adrian Rodriguez, an El Paso native who joined the company in 2013 and took the top legal post in 2017 (from the retiring John Boomer).
The Columbia-educated lawyer previously was an attorney in the Dallas office of Vinson & Elkins, where he worked in the energy regulation and complex commercial litigation practice groups. He also served as a law clerk to the U.S. District Court for the Western District of Texas in San Antonio.
Lazard was El Paso Electric’s financial advisor (George Bilicic, Akshay Dhiman and Jared Averbuch in New York) while BofA Merrill Lynch assisted the fund and affiliate Sun Jupiter Holdings (Jason Satsky, also in New York).
El Paso Electric provides generation, transmission and distribution services to 428,000 retail and wholesale customers in a 10,000 square mile area of the Rio Grande valley in west Texas and southern New Mexico. It employs 1,110.
The offer includes $2.78 billion in cash, or $68.25 per share, a 17% premium over El Paso Electric’s closing price this past Friday.
The agreement has been unanimously approved by El Paso Electric’s board and is expected to close in the first half of next year if it clears El Paso Electric’s shareholders and regulators.
Williams Capital Group analyst Christopher Ellinghaus told The Texas Lawbook that the price tag seems on par with other recent deals with premiums over 20% considering some takeout expectation was already priced into El Paso Electric’s shares.
However, the 22 to 23 multiple – based on expected earnings for 2021 – is “still pretty rich” in absolute price-to-earnings valuation terms, he said, “but that’s not bad compared to some other deals.”
DealReporter said in October of last year that Lazard was preparing to shop El Paso Electric around to potential buyers. Then, on March 1, industry publication SparkSpread reported that the company had resumed M&A discussions with multiple buyers and taken multiple bids, which boosted its shares by 6% to around $57 per share.
“Either there is fire where there is smoke or Blue Horseshoe loves Anacott Steel,” Ellinghaus wrote in a note at the time, referring to the phrase used in the movie “Wall Street” as code for insider trading. At that time Ellinghaus had a $53 per share price target for the company.
Ellinghaus said he’s always sorry to see a utility with a good fundamental growth profile like El Paso Electric disappear.
“We are assuming the merger goes through at this point,” he said. “But we will keep a watch as the regulatory approval process could have some challenges given the TXU issues with a financial owner [it filed for bankruptcy under KKR] and always the El Paso city politics can come into play.”
El Paso Electric CEO Mary Kipp said in a statement that IIF is the ideal partner as the company looks to the future and the long-term investment required to meet the growing energy needs of its communities.
“Our partnership brings value to everyone: our customers, shareholders, our employees and community,” she said. “This is a tremendous opportunity to scale and prepare the company for a clean energy future that is local and sustainable.”
El Paso Electric and IIF said they’re committed to keeping the company’s local workforce and its headquarters in El Paso; will provide $21 million in credits on customer electric bills for more than 36 months; and will make $1.2 million in annual charitable contributions under the company’s Community Partner Program, which provides employee volunteers and financial support to local organizations that positively impact its service area.
El Paso Electric and IIF also vowed to establish a Community Economic Sustainability Fund to invest $100 million over 20 years to finance growth and economic development in the company’s service area while also taking steps to ensure the continued financial strength of the company as an engine for local economies.
Matthew LeBlanc, chief investment officer of J.P. Morgan’s infrastructure investments group, said as a long-term owner of utilities, its management understands the importance of El Paso Electric’s mission and believes its resources and experience can expand its leadership as a provider of safe, clean, affordable and reliable energy.
The $11.3 billion IIF is responsible for investing and growing the retirement funds of more than 40 million families, including 2 million people across Texas and New Mexico who will be invested in El Paso Electric.
Headquartered in New York and London, the fund said its investments are generally focused on companies that provide essential services, such as energy, water and transportation, to local communities either under a regulatory construct or long-term contracts.
IIF’s 19 portfolio companies are located primarily in the U.S., Western Europe and Australia and include 11 energy, utility and electric generation companies and $3 billion invested in renewable power generation assets. Its companies serve 20 million customers and employ 9,000.