In latest consolidation, NextEra to combine with Hawaiian Electric Industries

In the latest merger in the electric power industry, NextEra Energy (NYSE:NEE) and Hawaiian Electric Industries (NYSE:HE) have reached agreement to combine, the companies said Dec. 3.

The two companies will file their merger application with the state of Hawaii within 60 days. The two companies expect to obtain all necessary state and federal approvals within 12 months, the companies said.

The transaction, which is valued at approximately $4.3bn, includes the assumption of $1.7bn in HEI debt and excludes HEI’s banking subsidiary. In connection with the agreement, HEI separately announced a plan to spin off ASB Hawaii, the parent company of American Savings Bank (ASB), to HEI shareholders and establish it as an independent publicly traded company.

“Today’s announcement marks an important milestone for both our companies as we seek to leverage our respective strengths, commitments to our customers and the communities we serve and the mutual goal of building a cleaner energy future,” said NextEra Chairman and CEO Jim Robo.

“We are proud that Hawaiian Electric has agreed to join our company in large part because of our shared vision to bring cleaner, renewable energy to Hawaii, while at the same time helping to reduce energy costs for Hawaiian Electric’s customers. Today, Hawaiian Electric is addressing a vast array of complex and interrelated issues associated with the company’s clean energy transformation,” Robo said.

“In NextEra Energy, Hawaiian Electric is gaining a trusted partner that can help the company accelerate its plans to achieve the clean energy future we all want for Hawaii,” said HEI’s President and CEO Connie Lau.

“NextEra Energy and Hawaiian Electric share a common vision, a more affordable clean energy future for Hawaii,” Lau said. “While our goals are among the most ambitious in the nation, including increasing renewables to 65 percent, tripling solar and lowering customer bills 20 percent by 2030, we are confident that by leveraging both NextEra Energy and Hawaiian Electric’s expertise and the additional financial resources that NextEra Energy brings, we can meet these targets even sooner,” Lau said.

The Hawaiian Electric companies – Hawaiian Electric, Maui Electric and Hawaii Electric Light – have put Hawaii on the leading edge of clean energy nationally, successfully integrating rooftop solar with 11% of their customers and helping achieve 20% renewable energy, the companies said.

NextEra Energy shares Hawaiian Electric’s vision of increasing renewable energy, modernizing its grid, reducing Hawaii’s dependence on imported oil, integrating more rooftop solar energy and, importantly, lowering customer bills. Hawaiian Electric has filed plans with the Hawaii Public Utilities Commission (PUC) that seek to enhance Hawaii’s energy future by lowering electric bills, giving customers more service options and nearly tripling the amount of distributed solar, while achieving among the nation’s highest levels of renewable energy by 2030, the companies said.

Companies outline terms of agreement; No Hawaii layoffs for two years

Subject to the terms and conditions of the merger agreement, upon completion of the transaction, HEI shareholders will receive an estimated total value of approximately $33.50 per share, representing an approximately 21% premium to HEI’s trailing 20-day volume-weighted average price as of the close on Dec. 2, 2014. The total value will consist of:

•0.2413 shares of NextEra Energy common stock for each HEI share they own, valued at $25.00 per HEI share, based on NextEra Energy’s volume-weighted average stock price for the 20 trading days ended Dec. 2, 2014;

•A one-time special cash dividend, to be paid by HEI, of $0.50 per HEI share for shareholders of record as of the date immediately prior to the closing of the transaction; and

•Shares of ASB Hawaii, through the spinoff transaction, with a current estimated value of $8.00 per share based on consensus analyst estimates.

In addition, NextEra Energy will also assume approximately $1.60[2] per HEI share of tax liability for the spinoff of ASB Hawaii. This corporate-level tax liability results in additional value over time of up to $1.60 per share to new ASB Hawaii shareholders through an ASB tax basis step-up. With the exception of the one-time special cash dividend, the overall transaction, including the spinoff of ASB Hawaii, is expected to be tax-free to HEI shareholders.

In addition, the jurisdiction of the Hawaii PUC over Hawaiian Electric will not be diminished as a result of the transaction, the companies said.

Upon completion of the transaction, together with Florida Power and Light (FPL) and NextEra Energy Resources, Hawaiian Electric will become a third principal business within the NextEra Energy family of companies. Hawaiian Electric will continue to operate under its current name and continue to be headquartered in Honolulu. Hawaiian Electric’s utilities will continue to be locally managed from their existing operating locations. No involuntary reductions to Hawaiian Electric’s workforce are expected as a result of the transaction for at least two years after close, and all of its union labor agreements will be honored.

Nextra recently withdrew from looking at acquiring Energy Future Holdings assets from a bankruptcy proceeding in Texas.

Citigroup Global Markets is serving as financial advisor to NextEra Energy, and Wachtell, Lipton, Rosen & Katz is legal counsel.

J.P. Morgan Securities LLC is serving as financial advisor to HEI, and Skadden, Arps, Slate, Meagher & Flom LLP is legal counsel.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.