El Paso Electric is entering a new phase in its 118-year-old history. The electricity provider for El Paso and other parts of the Southwest will be sold to JP Morgan’s Infrastructure Investments Fund, or IIF, for $4.3 billion in a deal announced Monday by CEO Mary Kipp.
The fund, an $11.3-billion investment vehicle managed by JP Morgan, will pay stockholders $68.25 cash per share in the deal. That’s 17% above the May 31 closing price (NYSE: EE).
“I really wanted to make sure that they knew that this isn’t a bad thing, it’s absolutely a good thing for them, the company and the region,” Kipp said in a phone interview. “As a flagship utility in the IIF, it’ll be a way for our community to grow and prosper.”
The sale of El Paso Electric comes at a time when the company is expanding its offerings for solar power and stepping away from coal-generated power. The utility has more than 417,000 retail and wholesale customers.
The sale also comes at a time of more consolidation in the utility industry. Kipp said few small, independent utility companies are still around, and that this sale would help El Paso Electric keep up with the growing power demands of the region.
Kipp said several entities have expressed interest in acquiring El Paso Electric over the last five years, but said none of those offers made a lasting mark.
“We never saw a compelling enough case where we’d want to go the long road with them,” Kipp said.
What made the difference this time: The commitments IIF made to keep El Paso Electric’s workforce in place and its level of investment in the region’s economy, Kipp said.
“Here at El Paso Electric, we’re a family in many ways,” Kipp said. “Our employees, we want to make sure they’re taken care of. That they (IIF) were making sure to keep jobs for union, non-union, management, all of that matters.”
The IIF and El Paso Electric will contribute $100 million over 20 years to fund growth and economic development in the company’s service area. Customers will receive $21 million in credits distributed over 36 months.
The IIF will also ensure El Paso Electric continues its philanthropy efforts, which Kipp said includes $1.2 million in donations to various charitable organizations.
“It was really important to us that those partners who support those in need, education, the arts, continue to be supported,” Kipp said.
Headquarters for the company will remain in El Paso, Kipp said. Kipp said she expects the deal to close in the first half of 2020, pending shareholder and regulatory approval.
The sale means El Paso Electric will no longer be traded on the New York Stock Exchange, but instead will be privately held through the retirement fund investment vehicle managed by JP Morgan.
That would leave El Paso as the headquarters of one publicly traded company, Helen of Troy (Nasdaq: HELE).
Kipp said about 98% of El Paso Electric stock is institutionally held, with the other 2% held by individual investors. A spokesman for El Paso Electric said less than 1% of the company’s stock is owned by El Pasoans.
Landy Gilbert, managing director and investment principal for the Infrastructure Investments Fund, said El Paso Electric is the fund’s first electricity utility, but it already holds utilities in other areas, including water, waste water and natural gas.
There are some 19 companies in the IIF, including utility providers in the U.S. and United Kingdom. Some of those companies include the Southwest Water Company, Summit Utilities and Novatus Energy.
Retirement investments from over 40 million families are kept in the IIF, Gilbert said.
“There were lots of alternatives for the company. We’re glad they saw the value of a partnership,” Gilbert said. “We see this as a significant long-term investment into the community.”
And what about that $21-million credit that the fund says will be due customers? According to El Paso Electric’s 8-K filing with the Securities and Exchange Commission, “the rate
credit will be distributed among customers in 36 monthly installments starting shortly after closing of the transaction. Allocation of the funds is to be determined in a post-closing proceeding. The Company will not attempt to recover the value of this rate credit in future cases.”
The sale of El Paso Electric won’t be final until the deal is okayed by shareholders and receives the needed approvals from a slew of regulatory agencies: the Federal Energy Regulatory Commission, U.S. Nuclear Regulatory Commission, Federal Communications Commission, Public Utility Commission of Texas and the New Mexico Public Regulation Commission.
The company also needs a stamp of approval from one more entity: the city of El Paso. El Paso Mayor Dee Margo sent a statement via a city spokeswoman that listed what commitments the fund has made, including keeping the local workforce in place.
“We will continue to review the agreement to determine what is best for our constituents,” Margo said in the statement.
Gary Hedrick, who was CEO of El Paso Electric from 2001 to 2007, said the sale is good for shareholders and for the company as it serves more customers.
“Over that time period we had a lot of offers,” Hedrick said of his time as CEO. “When you get an offer like that, the board’s job is to consider whether it’s good for the shareholder and whether it’s really closable. You have to consider whether it’ll be acceptable to the parties who have to approve it.”
Hedrick, who is now a professor of corporate enterprise at the University of Texas at El Paso, said investments made in El Paso by large private equity groups like JP Morgan bode well for the region.
“The fact that it’s a 20-year (economic development) commitment is a strong indication that the purchaser is a long-term, committed player,” Hedrick said. “Utilities are attractive to private equity groups because they’re kind of a stable business. They have a stable cash flow, and, in this case, good growth prospects.”
Former El Paso Mayor Larry Francis, who was mayor during El Paso Electric’s bankruptcy in the early 1990s, said the sale is not a good deal and the city should consider buying out the company.
“People will say it’s a $4-billion deal. It’s not,” Francis said. “The city, if they play their cards right, can go into court and condemn the assets for what they’re worth now.”
It’s unclear how much the board will change after IIF takes over, but Gilbert said it’s the fund’s practice to have independent boards of directors.
“We’ve made commitments to having independents and local representation. We look forward to talking more about that,” Gilbert said.
El Paso Electric’s eight-person board includes two local members – Raymond Palacios Jr., president of the Bravo car dealerships in El Paso and Las Cruces, and Edward Escudero, vice chair of WestStar Bank and CEO of High Desert Capital. Kipp is also on the board.
Now for the $64,000 question: Will El Paso Electric change its name? The answer: a resounding “no.”
“That was really important to us,” Kipp said. “It’s an old brand, it means a lot in our community and I think it signifies the partnership with the biggest city we serve.”
Shares of El Paso Electric closed at $65.38 on Friday, up 30.4% year to date.
Email El Paso Inc. reporter Sara Sanchez at firstname.lastname@example.org or call (915) 534-4422, ext. 105.