U.S. Utility Deal Rejection Casts Shadow on Foreign Buys

Updated on
  • Louisiana regulator said deal not in customers' best interest
  • Cleco's shares slid in New York ahead of state's decision

Louisiana just delivered a warning to the growing ranks of foreign companies looking to snap up U.S. utilities for their regulated returns.

On Wednesday, the state’s Public Service Commission rejected a $3.4 billion takeover of utility-owner Cleco Corp. by an investor group led by Sydney-based Macquarie Group Ltd.that also includes Canadian pension funds. The commission decided in a 5-0 vote that the deal wasn’t in the best interest of customers.

The rejection comes as foreign buyers including Fortis Inc. and Emera Inc. are seeking approval to take over U.S. power companies. Since 2014, at least $123 billion worth of utility takeovers have been announced in the U.S., according to data compiled by Bloomberg. The ruling on Cleco’s takeover may dim the chances of future acquisitions by non-U.S. companies, according to Bloomberg Intelligence analyst Kit Konolige.

The message from Louisiana regulators “was pretty straightforward: We don’t want outsiders taking over a Louisiana company,” Konolige said by phone Wednesday. “That’s a different answer than what outsiders have been given in other jurisdictions.”

Commissioners questioned representatives of Cleco, Macquarie and opponents of the deal, as well as members of its own staff, for more than six hours before voting. Cleco’s shares slid as it deliberated and extended declines after the close of trading, once the decision was out. The companies spent more than a year working to gain regulatory approvals for the deal only to have it unravel with Wednesday’s rejection.

“We are disappointed with the Louisiana Public Service Commission decision, which we believe fails to acknowledge the benefits this transaction would have provided to all Cleco stakeholders,” Cleco and the Macquarie-led investor group said in a statement late Wednesday, adding that they’ll review their options.

Public Service Commission Chairman Clyde Holloway described the sale of Cleco to Macquarie as “Wall Street greed” during the panel’s meeting on Wednesday. “It’s all hedge funds,” he said.

Cleco plunged $5.01, or 9.5 percent, on Wednesday to close at $47.49 in New York. Shares tumbled 1.2 percent to $46.94 at 1:09 p.m. in New York on Thursday.

Macquarie, the largest private operator of U.S. utility assets, and other investors offered to buy Cleco in October 2014, attracted by the steady, long-term returns of regulated power assets.

(Updates with share price in eighth paragraph.)
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