Rejection of Cleco deal casts shadow on other potential takeovers of US utilities by foreign investors

    After nearly six hours of testimony Wednesday, the Louisiana Public Service Commission rejected the proposed $5 billion sale of Pineville-based Cleco Corp. to an investment group led by Macquarie Infrastructure and Real Assets and British Columbia Investment Management Corporation, together with John Hancock Financial.

    As The Town Talk reports, PSC approval was the last significant regulatory hurdle—as the deal had received other regulatory clearance and was approved by Cleco stockholders in February—and it appeared heading into Wednesday’s meeting that decision could go either way. But as the hearing progressed, it appeared likely the sale would be voted down 3-2. When Commissioner Clyde Holloway made a motion to deny the sale because it was not in the public interest, no one opposed, so it passed by consent.

    “I am pleased that a majority of my fellow commissioners joined me today,” Holloway said following the vote. “We cannot clarify enough, this transaction deals with a monopoly, Cleco is a monopoly. Their customers do not have a choice. The proposed buyers simply did not prove their case in testimony. … The burden of proof was on Cleco and Macquarie, and they did not prove this deal was in the long term interest of customers.”

    Bloomberg reports rejection of the deal by PSC could hinder other large acquisitions of American utility companies by non-U.S. companies. Since 2014, about $123 billion worth of utility deals have been announced in the U.S., according to data compiled by Bloomberg.

    The state’s rejection comes as foreign buyers—including Fortis Inc. and Emera Inc.—are seeking approval to take over U.S. power companies, Bloomberg reports. It should serve as a warning to the growing ranks of foreign companies looking to snap up U.S. utilities for their regulated returns.

    Bloomberg Intelligence analyst Kit Konolige says the ruling on Cleco’s takeover may dim the chances of future acquisitions by non-U.S. companies.

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

    Though representatives from Cleco and its prospective buyers touted nearly 80 promises the prospective new owners made, including paying customers $125 million in rate credits over 15 years and keeping the company headquartered in Pineville, the PSC ultimately sided with opponents of the deal who claimed it could negatively impact Cleco customers.

    “We’re disappointed by the LPSC’s decision, which we feel does not acknowledge the protections for all our stakeholders,” reads a statement issued by Cleco spokesperson Robbyn Cooper. “From here, we will review our options, make a decision and communicate that decision at the appropriate time.”

    Parties opposed to the sale included the nonprofit Alliance for Affordable Energy and some private citizens. They hammered the deal for the amount of debt Cleco would be taking on (in addition to $1.35 billion in assumed debt, the buyers proposed using $1.35 billion in new debt as part of the sale) and a tax structure that could have allowed the new owners to collect up to $30 million a year in taxes from ratepayers that would not be paid to the taxing entities, but instead would be retained to enhance investor returns.

    Shares of Cleco plunged $5.01, or 9.5% on Wednesday to close at $47.49. As of 9:30 this morning, they had fallen another 0.88% to $47.07. 

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