CPP Investments and GIP Taking ALLETE Private in US$6.2 Billion Deal

Seher Dareen of Reuters reports CPPIB co-leads partnership acquiring US utility ALLETE in $6.2-billion deal:

U.S. utility Allete said on Monday that it had agreed a deal with investment firms Global Infrastructure Partners and CPP Investments to be taken private at a US$6.2-billion valuation, inclusive of debt.

The transaction is a rare example of a U.S. utility being taken private by investment firms, and comes at a time when such companies are receiving increased investor interest as technological innovations, such as artificial intelligence and data centres, boost power demand.

For utilities such as Allete, this hunger for power comes as they are implementing a shift to greener forms of generation, creating the need for significant investment in their networks.

Allete chief executive officer Bethany Owen told Reuters that the Minnesota-based company’s strategy involved spending US$4.3-billion on renewables over the next five years, and further billions on investments after that. Raising these sums, while being a smaller utility in the public markets, would have been challenging.

“We were looking for the right partners to provide ready access to capital so that we could execute that transformative strategy,” said Ms. Owen, who will continue in her role after the transaction closes in mid-2025.

The cash offer of $67 per share for Allete represented a 19-per-cent premium to the company’s closing share price on Dec. 4, a day before Reuters reported the power company was exploring a sale.

“This is a modest premium on several angles,” said Guggenheim utilities research analysts, adding this “unique” deal would not set a precedent for other go-private deals.

Shares of Allete initially rose following the deal announcement, but were 1.6 per cent lower in midafternoon trading.

Allete has nearly 188,000 customers in northern Minnesota and northwestern Wisconsin and also operates wind, solar, coal-fired, biomass and hydroelectric power generation assets across the Upper Midwest.

On Monday, CPP Investments put out a press release stating ALLETE has entered into an agreement to be acquired by a partnership led by it and Global Infrastructure Partners to advance the company's ‘Sustainability-in-Action’ strategy:

• Positions ALLETE to Execute Clean-Energy Future for Customers, Communities and Employees as a Private Company
• ALLETE to Remain Locally Managed and Operated with Headquarters in Duluth, Minnesota
• Agreement Contains Meaningful Commitments to Retain ALLETE’s Workforce and Maintain Compensation Levels and Benefits Programs
• Utilities Minnesota Power and Superior Water, Light and Power to Continue Being Regulated by Minnesota Public Utilities Commission (MPUC) and Public Service Commission of Wisconsin (PSCW)
• Union Agreements to be Honored
• Shareholders to Receive $67.00 Per Share in Cash

DULUTH, Minn.— May 6, 2024 — ALLETE, Inc. (NYSE: ALE) and a partnership led by Canada Pension Plan Investment Board (“CPP Investments”) and Global Infrastructure Partners (“GIP”), (the “partnership”), today jointly announced that they have entered into a definitive agreement under which the partnership will acquire ALLETE for $67.00 per share in cash, or $6.2 billion including the assumption of debt.

ALLETE is a leading energy company and provider of safe, reliable, and competitively priced energy with a national footprint. Together, ALLETE and its family of companies, which includes regulated utilities and renewable energy companies, are focused on driving the clean-energy transition by expanding renewables, reducing carbon, enhancing grid resiliency, and driving innovation.

“Our ‘Sustainability-in-Action’ strategy has secured ALLETE’s place as a clean-energy leader. Through this transaction with CPP Investments and GIP, we will have access to the capital we need while keeping our customers, communities and co-workers at the forefront of all that we do, with continuity of our day-to-day operations, strategy and shared purpose and values,” said ALLETE Chair, President, and Chief Executive Officer Bethany Owen. “CPP Investments and GIP have a successful track record of long-term partnerships with infrastructure businesses, and they recognize the important role our ALLETE companies serve in our communities as well as our nation’s energy future. Together, we will continue to invest in the clean-energy transition and build on our 100 plus-year history of providing safe, reliable, affordable energy to our customers.”

CPP Investments and GIP are premier, well-resourced infrastructure investors at a global scale with deep industry expertise and long-term outlooks. Together, they bring over four decades of experience investing in large-scale infrastructure businesses across sectors to support sustainable, long-term growth. Both CPP Investments and GIP pride themselves on their responsible investment approach, which is centered on delivering value to their organizations and the communities in which they operate.

Owen continued, “Our ‘Sustainability-in-Action’ strategy will require focused execution and significant capital. Transitioning to a private company with these strong partners will not only limit our exposure to volatile financial markets, it also will ensure ALLETE has access to the significant capital needed for our planned investments now and over the long term. Importantly, CPP Investments and GIP are aligned with ALLETE’s values of safety, integrity, planet and people. They also recognize the importance of our employees and our ties to the communities we serve and in which we operate. To that end, we are proud to remain locally managed as we enter this next chapter as committed as ever to our customers, our communities and our employees. I look forward to all we will achieve together.”

“ALLETE’s management team has done an excellent job leading the company toward a truly sustainable clean-energy future. Together with GIP, we look forward to bringing our sector expertise and long-term capital to support ALLETE’s strong management team as they continue to deliver safe, reliable, affordable energy services to their customers,” said James Bryce, Managing Director and Global Head of Infrastructure, CPP Investments. “ALLETE is at the forefront of the clean energy transition and we are thrilled to support the delivery of the company’s ‘Sustainability-in-Action’ strategy, which we believe will generate substantial value both for ALLETE’s customers and CPP contributors and beneficiaries.”

“We are excited to work with Bethany Owen and the full ALLETE team as they continue to supply affordable and reliable energy services,” said Bayo Ogunlesi, GIP’s Chairman and Chief Executive Officer. “GIP, alongside CPP Investments, look forward to partnering to provide ALLETE with additional capital so they can continue to decarbonize their business to benefit the customers and communities they serve. Bringing together ALLETE, with its demonstrated commitment to clean energy, with GIP, one of the world’s premier developers of renewable power, furthers our commitment to serve growing market needs for affordable, carbon-free and more secure sources of energy.”

Commitment to Employees, Customers and Communities
Under the terms of the merger agreement governing the proposed transaction, several commitments have been made by CPP Investments and GIP to align with ALLETE’s shared purpose, culture and values, including:

• Retaining Workforce: The agreement provides commitments with respect to workforce retention, as well as maintaining compensation levels and benefits programs. The agreement also honors union contracts including our strong partnership with the International Brotherhood of Electrical Workers.
• Maintaining Current Headquarters and Leadership: ALLETE’s Minnesota Power and Superior Water, Light and Power (SWL&P) will continue as independently operated, locally managed, regulated utilities. Bethany Owen will continue as Chief Executive Officer, and the current management team will continue to lead ALLETE and remain as the primary points of contact for customers, regulators and other stakeholders. ALLETE will continue to be headquartered in Duluth, Minnesota.
• Contributing to Community: ALLETE and its family of businesses and the Minnesota Power Foundation will continue to make economic and charitable contributions in its service territories to support vibrant and sustainable communities, close opportunity gaps, and help people of all ages live with purpose and passion. ALLETE will continue to invest corporate resources and employee volunteer hours to help build thriving communities.

In addition, the transaction will support existing commitments made by ALLETE such as:

• ALLETE’s Clean-Energy Goals: All ALLETE companies will remain committed to advancing a clean-energy future, through solar, wind, storage and transmission infrastructure and achieving carbon-free goals of the respective states in which the companies operate.
• Retail or Municipal Rates for Utility Customers: Following the close of the acquisition, Minnesota Power and SWL&P will continue to be regulated by the Minnesota Public Utilities Commission (MPUC), the Public

Service Commission of Wisconsin (PSCW) and the Federal Energy Regulatory Commission (FERC). The acquisition is not expected to impact retail or municipal rates for utility customers.

Terms, Approvals and Timing
In connection with the merger, CPP Investments and GIP will acquire all of the outstanding common shares of ALLETE for $67.00 per share in cash representing an enterprise value of approximately $6.2 billion, including ALLETE’s net debt. This represents a premium of approximately 19.1% to ALLETE’s closing share price on December 4, 2023, the date prior to a media article reporting that ALLETE was exploring a sale. The consideration also represents a 22.1% premium to the 30-day volume weighted average share price prior to that date.

The acquisition was unanimously approved by ALLETE’s Board of Directors and is expected to close in mid-2025, subject to the approval of ALLETE’s shareholders, the receipt of regulatory approvals, including by the MPUC, PSCW and FERC, and other customary closing conditions. Dividends payable to ALLETE shareholders are expected to continue in the ordinary course until the closing, subject to approval by ALLETE’s Board of Directors. Upon completion of the acquisition, ALLETE’s shares will no longer trade on the New York Stock Exchange, and ALLETE will become a private company.

Advisors
J.P. Morgan Securities LLC is acting as lead financial advisor and provided a fairness opinion to ALLETE, and Houlihan Lokey Capital, Inc. also provided a fairness opinion to ALLETE. Skadden, Arps, Slate, Meagher & Flom LLP is acting as legal advisor to ALLETE.

Cancellation of First Quarter 2024 Earnings Conference Call
ALLETE will release its financial results for the first quarter as scheduled before the stock markets open on Thursday, May 9, 2024. In light of the announced transaction with CPP Investments and GIP, ALLETE will be cancelling its scheduled earnings conference call.

Additional Resources
Additional information and stakeholder resources are also available on ALLETE’s dedicated transaction website at www.ALLETEforward.com.

About ALLETE, Inc.
ALLETE, Inc. is an energy company headquartered in Duluth, Minnesota. ALLETE’s largest business unit, Minnesota Power, is an electric utility which serves 150,000 residents, 14 municipalities, and some of the nation’s largest industrial customers. In addition to Minnesota Power, ALLETE owns Superior Water, Light and Power, based in Superior, Wisconsin, ALLETE Clean Energy, based in Duluth; BNI Energy in Bismarck, N.D.; and New Energy Equity, headquartered in Annapolis, Maryland; and has an 8% equity interest in the American Transmission Co. More information about ALLETE is available at www.allete.com. ALE-CORP

ALLETE calculates and reports carbon emissions based on the GHG Protocol. Details in ALLETE’s Corporate Sustainability Report

About CPP Investments
Canada Pension Plan Investment Board (CPP Investments™) is a professional investment management organization that manages the Fund in the best interest of the more than 22 million contributors and beneficiaries of the Canada Pension Plan. In order to build diversified portfolios of assets, investments are made around the world in public equities, private equities, real estate, infrastructure and fixed income. Headquartered in Toronto, with offices in Hong Kong, London, Luxembourg, Mumbai, New York City, San Francisco, São Paulo and Sydney, CPP Investments is governed and managed independently of the Canada Pension Plan and at arm’s length from governments. At December 31, 2023, the Fund totaled C$590.8 billion. For more information, please visit www.cppinvestments.com or follow us on LinkedIn, Instagram or on X @CPPInvestments.

About Global Infrastructure Partners (GIP)
Global Infrastructure Partners (GIP) is a leading infrastructure investor that specializes in investing in, owning and operating some of the largest and most complex assets across the energy, transport, digital infrastructure and water and waste management sectors. With decarbonization central to our investment thesis, we are well positioned to support the global energy transition. Headquartered in New York, GIP has offices in Brisbane, Dallas, Hong Kong, London, Melbourne, Mumbai, Singapore, Stamford and Sydney.GIP has approximately $112 billion in assets under management. Our portfolio companies have combined annual revenues of approximately $73 billion and employ over 115,000 people. We believe that our focus on real infrastructure assets, combined with our deep proprietary origination network and comprehensive operational expertise, enables us to be responsible stewards of our investors’ capital and to create positive economic impact for communities. For more information, visit www.global-infra.com.

This is the type of massive infrastructure deal that I call a win-win-win for all parties involved.

First, ALLETE gets two premier infrastructure investors with massive capital to continue executing its ‘Sustainability-in-Action’ strategy.

And of course it's a win for GIP and CPP Investments as they take this utility private and provide capital to fund its decarbonization strategy.

ALLETE is a publicly-listed utility and the size of this deal -- $6.2 billion including debt -- is massive allowing these two large investors to put meaningful capital at work to fund its operations.

Of course, as the company executes on its strategy, it will become more valuable over the long run and then can be sold privately or taken public again.

Also worth noting the premium paid to take it private was modest -- $67 per share for Allete representing a 19% premium to the company’s closing share price on Dec. 4, a day before Reuters reported the power company was exploring a sale.

For CPP Investments and GIP which was bought out by BlackRock earlier this year, this take private deal also allows them to both focus on the energy transition economy where they invest in high emitting companies that are decarbonizing their operations.

That's an additional bonus to this deal which is why CPP Investments posted this on LinkedIn:

We believe helping essential, traditional energy businesses like ALLETE to decarbonize is critical to addressing climate change and that helping them successfully navigate the economy-wide evolution to a low-carbon future will create value for patient long-term investors. 

This deal also silences critics who think CPP Investments isn't investing massively in the transition economy. It obviously is.

As for ALLETE, since it's publicly listed, there is a lot of public information on it:

ALLETE, Inc. operates as an energy company. The company operates through Regulated Operations, ALLETE Clean Energy, and Corporate and Other segments. It generates electricity from coal-fired, biomass co-fired / natural gas, hydroelectric, wind, and solar. In addition, the company provides regulated utility electric services in northwestern Wisconsin to approximately 15,000 electric customers, 13,000 natural gas customers, and 10,000 water customers, as well as regulated utility electric services in northeastern Minnesota to approximately 150,000 retail customers and 14 non-affiliated municipal customers. Further, it owns and maintains electric transmission assets in Wisconsin, Michigan, Minnesota, and Illinois. Additionally, the company focuses on developing, acquiring, and operating clean and renewable energy projects; and owns and operates approximately 1,200 megawatts of wind energy generation facility, as well as involved in the coal mining operations in North Dakota; and real estate investment activities in Florida. It owns and operates 162 substations with a total capacity of 9,980 megavolt amperes. The company serves taconite mining, paper, pulp and secondary wood products, pipeline, and other industries. The company was formerly known as Minnesota Power, Inc. and changed its name to ALLETE, Inc. in May 2001. ALLETE, Inc. was incorporated in 1906 and is headquartered in Duluth, Minnesota.

I also like what ALLETE's CEO Bethany Owen (featured above) told Minnesota Law back in 2019 on what excites her about working in energy:

Everything is exciting about working in the energy industry today. We are in one of the most transformative times, and ALLETE is a leader in the clean energy field. Sustainability is not only one of our company’s values—it is the foundation of our business strategy. Our largest business unit, Minnesota Power, is on track to provide customers 50 percent renewable energy by 2021—further and faster than most of our peers and well ahead of the state’s requirement of 25 percent by 2025. In addition, we formed ALLETE Clean Energy eight years ago, and that company now operates in nine states and will have more than 1,000 megawatts of wind energy in its portfolio by the end of 2020. We are very proud of our leadership role in developing and supplying clean, sustainable energy.

This is another reason why CPP Investments and GPI invested billions to take ALLETE private.

Now, take private deals on US utilities are extremely rare because they require massive capital and are scrutinized by regulators, but there were some historic deals in the past.

It's not every year you'll see two giant investors taking a US utility private but this deal was perfect for all parties.

Once it closes, Canada's pension fund will own a huge stake in this company and I have no doubt this will be a great long-term investment.

In other CPP Investments news, the Fund recently announced it has committed US$450 million to support the continued growth of Ontic:

CVC Capital Partners (CVC), Ontic’s current financial partner, will remain invested in the business.

Ontic is a leading provider of original equipment manufacturer (OEM) licenced parts and repair services for established aerospace technologies and is headquartered in the U.K., with operations in the U.S. and Singapore. Ontic manufactures and assembles a growing product portfolio of more than 8,000 flight-critical systems and products. The business’ client base includes global aerospace leaders across both OEMs and aircraft operators.

“Ontic is a globally trusted aerospace partner, supporting and supplying established aircraft parts to the world’s aerospace leaders. It is uniquely positioned to address the strong need for products and services necessary to extend longevity of existing aircraft fleets,” said Hafiz Lalani, Managing Director, Global Head of Direct Private Equity, CPP Investments. “We look forward to working alongside CVC, a long-standing partner to CPP Investments, and the Ontic leadership team, to support the business as it aims to continue its current growth trajectory, while delivering attractive risk-adjusted returns for CPP contributors and beneficiaries.”

CPP Investments’ Direct Private Equity (DPE) strategy is focused on assets and sub-sectors where we maintain competitive advantages including a strong track record, superior insights, and strategic partnerships to deliver attractive risk-adjusted returns.

This transaction has been signed and is subject to customary conditions and regulatory approvals. The transaction is expected to complete by year-end 2024.

This is another massive deal in terms of capital committed (US$450 million) to support the growth of  Ontic, a leading provider of OEM parts for established aerospace technologies. CPP Investments co-invested alongside strategic partner CVC to own a stake in this company.

What do these two deals have in common? Investing massive (scalable) capital to support the long-term growth of companies to add significant value to them.

Alright, let me wrap it up there.

Below, in October 2020, ALLETE President & CEO took part in a virtual panel discussion about seating more women in executive offices and on corporate boards with executives who are leading their companies toward gender equity and greater diversity. Excellent insights here, take the time to listen.