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El Paso Electric officials sought bids from utilities, investment funds in sale pursuit

Source: 
El Paso Times

Jul. 18--El Paso Electric officials spent more than two years looking at possibilities of selling the 117-year-old utility before approving a recent agreement to sell it to a J.P. Morgan Chase investment fund, recently filed documents show.

J.P. Morgan's Infrastructure Investments Fund, or IIF, had the highest bid among five solicited offers made Feb. 22 -- three months before the company's board of directors approved an agreement to sell the company to IIF, according to a preliminary proxy statement filed July 16 with the U.S. Securities and Exchange Commission.

The preliminary proxy filing contains information for the company's shareholders to study before a date is set for shareholders to vote on whether to approve or reject the proposed sale.

IIF, a New York based, $11.3 billion investment fund for retirees and their families, agreed on June 1 to buy El Paso Electric for $4.3 billion , which includes up to $2.8 billion for the company's stock shares, and assuming about $1.5 billion in company debt. IIF has secured a loan commitment of $850 million from Bank of America to help fund the sale and its costs, according to the proxy statement.

The proposed sale must be approved by shareholders with two-thirds of the company's stock and by several government regulatory agencies before it can become final. The sale is projected to be completed in the first half of 2020.

In determining if the company should be sold to IIF, the El Paso Electric board of directors determined that continuing to operate as a stand-alone, publicly traded company was "less favorable to the company and its shareholders" than the proposed sale to IIF, according to the proxy statement.

Former mayor doesn't favor sale of hometown utility

Former El Paso Mayor Larry Francis. who played a key role in derailing a previous proposed sale of El Paso Electric to another utility in the early 1990s, when El Paso Electric was in bankruptcy reorganization, said he'd heard rumors for a couple of years about the company being for sale. His impression was that three long-time board members have wanted to sell the company for a long time, he said.

"All it (proxy) tells me is those guys wanted to sell and sell at a premium (price) and get out" with more than the market price for their stock holdings, Francis said.

"I think it's bad if they sell it. If they sell it to someone like this (IIF), that means some outside financial interest owns the company in total and has no real grasp of operating an electric utility," Francis said.

The investment fund has agreed to keep El Paso Electric's headquarters in El Paso, but the real decision making will be done elsewhere, Francis maintained.

The company's stock, which has been publicly traded for 72 years, according to company officials, would no longer be traded on the New York Stock Exchange if the sale is approved because IIF would operate it as a privately held company.

The utility has 1,100 employees and about 428,000 customers in the El Paso and Las Cruces areas.

Six potential buyers identified in 2018 by El Paso Electric

The company's board in December 2018 authorized having six potential buyers -- two utility companies, including one with foreign ties, and four investment funds -- contacted about their interest in acquiring the company.

That resulted in the company receiving on Feb. 22, five offers from its list of six potential buyers. The bids ranged from $57 per share from a utility company to IIF's initial bid of $66 a share. IIF later upped its offer to $68.25 per share, or about $2.8 billion. One investment fund did not submit a bid and withdrew from the EPE solicitation on Feb. 11.

EPE's stock price, which has increased since the IIF sale agreement was announced in June, closed Wednesday at $66.15 per share.

None of the competing bidders were identified in the proxy statement. One utility company's offer was contingent on the possible sale being approved by the federal government's Committee on Foreign Investment in the United States, which determines if foreign investments in certain U.S. companies would hurt U.S. national security.

On May 16, the EPE board of directors told company executives to focus on negotiating with IIF and put the last competing bid of $65 a share from the utility with foreign ties on hold because it did not indicate a willingness to increase its offer, the proxy statement reported.

After about two weeks of further negotiations, the deal with IIF was approved by the EPE board on May 31.

While company officials were seriously evaluating selling the company in 2018, several rumors about the company receiving, evaluating and rejecting possible sale offers were reported by online industry publications, for which company officials declined to comment, the proxy statement noted.

New York financial firm to get $25.7M from EPE for evaluating sale

The company's board on March 28, 2018, hired Lazard Frères & Co., a New York financial advisory firm and expert in acquisitions and mergers, to study the company's alternatives of remaining a stand-alone, publicly traded company or trying to sell the company.

Lazard came up with a list of potential buyers that eventually was whittled down to six potential buyers that Lazard and company executives deemed to best fit the company's sale criteria, according to the proxy statement.

Company officials agreed to pay Lazard $25.7 million for its services including providing a review of the proposed IIF sale, and a written opinion of the sale. Its opinion, included in the proxy statement, deemed that the $68.25 share price offered by IIF is financially fair for the company's shareholders.

Lazard was to be paid $3.9 million of its fee when it issued its opinion May 31. The other $21.8 million is contingent on the sale being completed.

One of the two unnamed utility companies that placed a bid in February had made an unsolicited offer on April 20, 2017, to buy El Paso Electric at a price ranging from $58 to $64 per share of EPE's stock, which was then selling for around $51 per share. The EPE board on April 27, 2017, authorized company officials to analyze the offer and talk to the potential buyer's executives about it. However, the potential buyer later withdrew its offer for unknown reasons, the proxy statement reported.

That was followed by the board approving in late October 2017 a suggestion by Mary Kipp, El Paso Electric chief executive officer, to determine if an unnamed large technology company would be interested in pursuing a "business combination" with the utility, according to the the proxy statement. Lazard, prior to being hired for the company's formal sale review, helped company executives narrow a list of technology companies to approach to one company.

After Kipp and other EPE executives talked to the technology company officials, they determined that they were not interested in making a deal, Kipp reported to the EPE board on May 24, 2018.

Kipp negotiates possible sale while interviewing for new job

Kipp on July 1 announced she would leave El Paso Electric Aug. 1 to become president and eventual CEO of Puget Sound Energy, a large electric and natural gas utility in the Seattle area.

She is being replaced by Adrian Rodriguez, EPE senior vice president and general counsel, as interim CEO. Kipp is advocating that he become permanent CEO.

A recruiter approached Kipp about the Puget Sound job in late November 2018, just before the company solicited sale offers from six potential buyers. She interviewed for the job in late March or early April 2019 as she continued to negotiate a possible sale of El Paso Electric. Puget's board offered her the job June 20, and she informed the EPE board on June 25 that she had accepted the new job for personal reasons, according to the proxy statement. Kipp had reported, during a July 1 interview with the El Paso Times that she accepted the job June 28.

Kipp took the new job so she and her 13-year-old son can be closer to Kipp's brother, sister, and cousins in San Francisco, which is easier to connect to by air from Seattle than from El Paso, she said in the interview. She's losing several million dollars in stock awards and other compensation that she would have received if the IIF sale goes through and she remained El Paso Elecric's CEO.

IIF owns 19 companies in the U.S., Europe, and Australia, including 11 companies in the energy and electric-generation business, but this would be its first electric utility in the United States. It owns a small electric utility in England.

Vic Kolenc may be reached at 546-6421; vkolenc@elpasotimes.com; @vickolenc on Twitter.

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(c)2019 the El Paso Times (El Paso, Texas)

Visit the El Paso Times (El Paso, Texas) at www.elpasotimes.com

Distributed by Tribune Content Agency, LLC.

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