The Star Tribune highlights Chris Ellinghaus' interview with Walker Orenstein

Duluth electric utility owner Allete to go private

after $6.2 billion sale

Canada's pension board and a large investment fund have agreed to buy Duluth-based energy company Allete, whose electric utility supplies power to a swath of northeastern Minnesota homes and the region's large industrial customers.

The $6.2 billion deal for $67 per share would be an enormous change for Allete and Minnesota, shifting it to a private company in the hands of massive investment firms out of state, should the sale close next year.

The transaction would still need shareholders' and regulators' approval, including that of the Minnesota Public Utilities Commission (PUC). Some are already raising transparency concerns about a private company owning a public utility, a potential topic of debate at an upcoming PUC meeting Thursday.

But CEO Bethany Owen described the buyers as "investors, not operators" who are committed to Minnesota, would keep the headquarters in Duluth, retain the existing leadership team and promise to keep a big workforce intact.

...

Owen said Allete is looking at raising about $4.3 billion in the next five years for energy generation and infrastructure like transmission lines, which is enormous when compared to the company's roughly $3.4 billion market value. Instead of issuing equity in the public markets, Allete can lean on its new owners.

"We're looking at doubling the size of Allete over the next five years," Owen said. "That is not impossible [as a public company,] but it's a little more challenging to do when public markets are as volatile as they have been."

The Canada Pension Plan (CPP) Investment Board manages retirement funds for more than 22 million Canadians and has more than $590 billion in assets in Canadian dollars. Global Infrastructure Partners (GIP), the investment fund, manages $112 billion and focuses on infrastructure sectors including energy, transportation and water services. The mega asset management company BlackRock has plans to buy GIP, though that deal is not final yet either.

Owen said the buyers would help with more than raising money.

"They are very large entities with lots of deep experience and can help on things like supply chain," she said.

Still, there are skeptics of that justification. Chris Ellinghaus, a utilities analyst for Siebert Williams Shank, said Monday he doesn't agree raising capital would be so difficult. He said Allete has a strong balance sheet, and conditions would be "satisfactory if not favorable" for the company.

"The conditions that Allete is describing are not unique to them," Ellinghaus said. "So unless the whole sector is going to implode, I don't really fear for the industry being able to raise that kind of capital."

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By Walker Orenstein and Jana Hollingsworth

The Star Tribune

May 6, 2024