NEW YORK ( The Deal) -- NextEra Energy's ( NEE) announcement on Wednesday that it was to acquire Hawaiian Electric Industries ( HE) for approximately $4.3 billion, including the assumption of $1.7 billion in debt, was a negotiated deal and no auction was held, according to two sources familiar with the matter.
One of the sources said Honolulu-based Hawaiian Electric had a "soft" for sale sign up for a while, as the utility was looking for a buyer who could help bolster growth.
Indeed, Connie Lau, president, CEO, and chairman of the boards of Hawaiian Electric and American Savings, said in Wednesday's announcement that selling to Juno Beach, Fla.-based NextEra allows the company to accelerate its clean energy plans. Its goal is to increase renewables to 65%, tripling solar and lowering customer bills by 20% by 2030.
Hawaiian Electric shareholders will receive an estimated total value of approximately $33.50 per share, representing an approximately 21% premium to its trailing 20-day volume-weighted average price as of the close on Dec. 2.
Its shareholders will receive 0.2413 NextEra Energy shares per Hawaiian Electric Industries share and a one-time special cash dividend payment of $0.50 per share.
The transaction is expected to be neutral to earnings per share for NextEra Energy shareholders in the first full year after the deal close, but then it will be accretive.
NextEra Energy and Hawaiian Electric intend to file for merger approval with the Hawaii Public Utilities Commission within the next 60 days. The companies will also need approvals from the Federal Energy Regulatory Commission, federal banking and antitrust regulators, the Securities and Exchange Commission and Hawaiian Electric shareholders. The transaction is expected to close in about 12 months.
There is a $90 million break up fee.
No layoffs will occur at Hawaiian Electric for at least two years after the transaction closes.
A research note from BMO Capital Markets said the firm views the merger positively as the deal will provide NextEra with a new outlet for investment opportunities and it will allow the company to use its renewables expertise as Hawaiian Electric transitions to renewables such as wind, solar and LNG.
The note said Hawaiian Electric projects rate base growth of 7% annually through 2017. However, the state is intent in moving away from oil-fired generation, and therefore, the utility has submitted its power supply improvement plans. Should the commission approve these plans, rate base growth could accelerate beyond the aforementioned 7%.
The merger announcement said the transaction also expands NextEra Energy's regulated holdings and further balances its earnings mix, which is a common theme right now in the utilities industry.
For instance, in June, Milwaukee, Wis.-based Wisconsin Energy ( WEC) announced its acquisition of Integrys Energy Group, ( TEG) , based in Chicago, for $9.1 billion. Chicago-based Exelon ( EXC) announced on April 30 that it was acquiring Washington-based Pepco Holdings ( POM) in a transaction valued at $6.8 billion on an equity basis.
Regarding advisers on the NextEra/Hawaiian deal, Todd Guenther, Joe Sauvage, and Mark Shafir. at Citigroup Global Markets Inc. gave financial advice to NextEra Energy, and Edward Herlihy and Larry Makow at Wachtell, Lipton, Rosen & Katz provided legal advice. Charles Sieving, the general counsel at Nextera, also helped with the deal.
J.P. Morgan Securities LLC was the financial adviser to Hawaiian Electric, with Paul Dabbar and RA McDonough on the deal. Michael Rogan and Mark Gerber at Skadden, Arps, Slate, Meagher & Flom LLP were the legal advisers.
In connection with the merger, Hawaiian Electric also announced that it plans to spin off ASB Hawaii, the parent company of American Savings Bank, one of Hawaii's largest financial institutions, to shareholders and establish it as an independent publicly traded company. The American Savings Bank spinoff is expected to be tax-free to shareholders and it will be completed prior to this transaction. The spinoff will also be contingent upon the combination of NextEra Energy with Hawaiian Electric.
The value of American Savings Bank of approximately $8.00 per share, is estimated to be $3.5 billion or approximately $33.50 per HEI share.
Hawaiian Electric supplies power to approximately 450,000 customers or 95% of Hawaii's population through its electric utilities, which include Hawaiian Electric Co., Inc., Hawaii Electric Light Co., Inc. and Maui Electric Company, Ltd.
NextEra's principal subsidiaries include Florida Power & Light Company, a regulated electric utility serving about 4.7 million customers, and NextEra Energy Resources, LLC, a producer of renewable energy. Together, FPL and NextEra Energy Resources have completed more than $24 billion worth of major capital projects since 2003.
In July, NextEra jumped on the yieldco bandwagon and raised $443 million with its initial public offering of NexEra Energy Partners at $25. The IPO was oversubscribed and at the high-end of its expected price range. -- David Marcus contributed to this report.