Unsolicited Bid Puts Cleco on the Block
NEW YORK ( The Deal ) -- In response to buyer interest, Cleco
The utility, with a $4.4 billion enterprise value, received an unsolicited bid from Canadian infrastructure group Borealis Infrastructure , and in response, the board voted to launch a process, the sources said.
It will be a large deal for any infrastructure funds, as they will have to write a $3 billion equity check for the company, a source said. Cleco is seeking something in the range of $61 to $62 per share, according to a person familiar with the situation.
If the utility can muster that kind of interest, and with $1.3 billion in long-term debt as of March 31, according to regulatory filings, the value of the deal could easily climb to over $5 billion.
Goldman energy banker Matthew Gibson leads the advisory team, sources said.
Cleco declined to comment, and calls to Goldman Sachs and Borealis--the infrastructure arm of the Ontario Municipal Employees Retirement System --were not returned.
That Cleco's management has been interested in a change of control transaction is well known. Last year, Cleco shopped itself--mostly to strategic buyers--but abandoned the process because of a wide bid-ask spread, said sources and an industry banker.
The company's stock has climbed since its previous attempt to find suitors. Cleco was trading by Wednesday afternoon at $52.41, as compared to a 52-week high of $53.06 and a low of $43.69.
Cleco put its toe in the water again a couple of months ago, holding soft conversations with potential suitors regarding a sale of the company, the sources said. Borealis and Macquarie Group were among the parties talking to the utility, they said.
This time around, Goldman is marketing the utility primarily toward infrastructure funds, said the first source. However, strategic buyers cannot be discounted due to the low cost-of-capital environment, said the second source. Some of Cleco's neighboring utilities include Columbus, Ohio-based American Electric Power
The timing of the sale process makes sense as Cleco received approval for its rate case on Wednesday from the Louisiana Public Service Commission.
A successful review allows the company to continue to use its current formula rate plan through June 2020. An extension of the formula rate plan provides a buyer with confidence in Cleco's revenues and earnings stability going forward, making it a highly attractive target.
Cleco is also attractive due to its status as a regulated utility, which reduces earnings volatility and commodity risk. Exposure to the competitive power markets is a problem right now as forward power prices remain weak due to low natural gas prices.