The operator of power plants in Wisconsin and Iowa revised some provisions for executive pay and employee retirement plans in an event of a takeover, according to the company’s filing with the Securities and Exchange Commission this week. Madison, Wisconsin-based Alliant rose to a four-year high yesterday after disclosing the change, which may signal the utility is preparing for a sale, said Elizabeth Nowicki, a mergers and acquisitions professor at Tulane University Law School.
Alliant, which meets Buffett’s criteria for a takeover according to data compiled by Bloomberg, may attract Berkshire Hathaway Inc. (BRK/A)’s MidAmerican Energy Holdings Co., Wisconsin Energy or Xcel Energy Inc. with its assets in the U.S. Midwest, Caris & Co. and Westwood Holdings Group Inc. said. Alliant, which has risen twice as much as the average regulated utility in North America under 62-year-old Chief Executive Officer Bill Harvey, would be worth at least $46 a share, Manulife Asset Management said, exceeding its high of $45.74.
“There has been talk of Alliant as a possible target,” Andrew Levi, a New York-based utility and power analyst for Caris, said in a telephone interview. “Berkshire Hathaway, with their ownership of MidAmerican, they’re always kind of looking for a deal. Wisconsin Energy also fits the bill.”
Scott Reigstad, a spokesman for Alliant, said the changes disclosed in the SEC filing “can best be characterized as housekeeping items that make technical tweaks” and aren’t associated with “any potential future event.”
He declined to comment on whether Alliant has been approached about an acquisition or is considering a sale.
Buffett, CEO of Omaha, Nebraska-based Berkshire, didn’t respond to a request for comment e-mailed to his assistant, Carrie Kizer. Barry McNulty of Wisconsin Energy, and Xcel (XEL)’s Steve Roalstad declined to comment on rumors or speculation.
Alliant ended at $42.32 a share yesterday, its highest price since December 2007. The regulated utility serves more than a million customers in Wisconsin, Minnesota and Iowa with its 9,700 miles of electric transmission lines and 8,000 miles of natural-gas pipelines, its website said.
In a regulated market, utilities can pass along costs to customers by raising rates, while states monitor prices so that providers aren’t earning excessive returns.
Alliant revised its so-called change-in-control provisions in an SEC filing on Dec. 5 to restrict the ability of any “successor to the company” to amend employee retirement plans for three years after a takeover of the utility. The company also changed the timing of severance payments for executives to 10 days after the date of a takeover, the filing said.
The revisions are effective Jan. 1.
Tulane University’s Nowicki, who is a former SEC attorney, says the revisions made by Alliant aren’t typical.
“The changes made are specific enough and unique enough that it’s not part of some typical corporate governance review,” she said in a telephone interview. “There’s something going on. Alliant is envisioning something, whether they’ve already been approached by a possible acquirer or whether they have an insider who’s interested in increasing their control.”
In a takeover, Alliant could get $46 a share to $54 a share, said Greg Phelps, who manages $4.5 billion at Manulife Asset in Boston, including Alliant shares.
While Alliant faces slowing profit growth this year, the stock has advanced 50 percent since Harvey began as CEO in July 2005, according to data compiled by Bloomberg. That’s more than the 21 percent gain for comparable companies.
Alliant, valued at $4.7 billion, would make sense for Berkshire’s MidAmerican utility unit, according to Caris’ Levi. Berkshire bought Des Moines, Iowa-based MidAmerican in 2000 in what was the 81-year-old billionaire’s first foray into energy.
Buffett, who said five years ago that owning regulated utilities was “a way to stay rich,” has turned to acquisitions this year to help reduce Berkshire’s cash hoard. Berkshire, which had about $35 billion in cash on its balance sheet at the end of the third quarter, could spend as much as $10 billion on its next acquisition, Buffett said in a Nov. 21 interview.
Morningstar Inc. ranked Alliant among the most-likely U.S. companies to be acquired, according to a September report. MidAmerican was cited as a buyer for Alliant.
It was also one of the companies Bloomberg identified in March that met the acquisition criteria Buffett listed in his annual letter to shareholders.
Buffett typically prefers “simple” businesses with pretax profit exceeding $75 million, “consistent” earning power, and “good” returns on equity while employing little or no debt, according to his report. He has shifted his takeover strategy as Berkshire has grown to focus on “capital intensive businesses,” such as power producers and railroads, which require consistent investment in infrastructure and equipment.
So-called value investors such as Buffett also purchase companies when their stock prices are low by historical standards compared with earnings.
Alliant is now one of 32 U.S. companies with values from $2 billion to $10 billion with capital expenses accounting for at least 10 percent of their net fixed assets; a return on equity exceeding 10 percent; profit growth in the past five years that ranked in the top 50 percent; and an average price-earnings ratio in that span that was less than the median company in the Standard & Poor’s 500 Index, data compiled by Bloomberg show.
“Warren Buffett has always liked the regulated utility model,” Travis Miller, a utility analyst at Morningstar in Chicago, said in a telephone interview. “This is one of the more attractive utilities right now. He’s got a lot of cash available and we wouldn’t be surprised to see him make a move.”
Wisconsin Energy and Xcel Energy could also buy Alliant, according to William Costello, a Dallas-based utility analyst and money manager at Westwood, which oversees $14 billion.
Milwaukee-based Wisconsin Energy, which has a market value of $7.7 billion, and Alliant would be a “great combination” because Wisconsin Energy would be able to add customers in Iowa and Minnesota, he said. Alliant would also provide Minneapolis- based Xcel, which has a capitalization of $12.7 billion, with assets in Iowa and a bigger presence in Wisconsin, considered an attractive state for regulated utilities, he said.
“Alliant fits pretty well with either of them and would give them both a little bit more diversification and more longer-term growth prospects,” said Costello, whose firm owns shares of Wisconsin Energy (WEC) and Xcel. “Both of those companies would love to be buyers. I’d be happy to see either one of them merge with Alliant.”