Washington State regulators approve $7.4bn Puget Energy buyout

The approval from the state’s Utilities and Transportation Commission removes the last roadblock for the Macquarie-led take-private of the largest utility in the state. Parties to the transaction have until 9 January to ask the UTC to reconsider the decision, but to date no such motion has been filed.

In a 2-1 opinion, the Washington State Utilities and Transportation Commission has approved the sale of energy utility Puget Energy and its subsidiary, Puget Sound Energy (PSE), to a Macquarie-led consortium in a transaction valued at $7.4 billion.

The approval was the last step needed to finalise the Macquarie consortium’s takeover of the utility, which serves more than one million electric and 737,000 natural gas customers, primarily in Western Washington.

Parties to the case have until 9 January to ask the UTC to reconsider or clarify its decision, but to date no such motions have been filed, said Marilyn Meehan, a spokesperson for the UTC. If no such request is made, they have another 20 days to appeal the UTC’s decision to a superior court within Puget’s service territory.

Beyond the successful outcome of an appeal, the Macquarie consortium and Puget are free to consummate the transaction.

“There’s nothing stopping them from going ahead at this stage. The only thing that would stop the whole process is if there is a stay from the court,” Meehan said.

The consortium, which is made up of Macquarie Infrastructure Partners, the Canada Pension Investment Board, the British Columbia Investment Management Corporation, Alberta Investment Management, the Macquarie-FSS Infrastructure Trust and Macquarie Capital Group, offered $30 per share to acquire Puget in October 2007.

The deal gained necessary regulatory and shareholder approvals with the exception of the Utilities and Transportation Commission, which in October asked for additional briefs before issuing a final order on the deal.

The state Attorney General’s Public Counsel had urged the UTC to not approve the deal, arguing that it exposes Puget’s customers to too much financial risk due to the $1.6 billion of additional bank debt the utility would have to take on in addition to its existing debt.

Commissioner Philip Jones opposed approval of the sale, arguing that “the proposed agreement sets forth a capital structure with excessive debt for Puget Energy and PSE, and creates a privately held investor consortium that lacks sufficient transparency compared to the status quo”.

Commissioners Mark Sidran and Patrick Oshie backed the sale, arguing that “the nature and quality of these investors, their multi-billion dollar equity stake in Puget Energy, their deep pockets, and their commitment to fund PSE’s ongoing capital needs all are factors that suggest improved access to capital relative to the status quo”. 

The transaction ranks as one of the largest utility deals in the last two years, taking the number eight spot in accounting firm PricewaterhouseCoopers' 2007 global ranking of announced deals. Counting only acquisitions by financial sponsors, it ranked third behind the $45 billion Kohlberg Kravis Roberts-led buyout of TXU Corporation in Texas, and the $12.5 billion Babcock-led buyout of Alinta in Australia, which beat out a competing bid from a Macquarie-led consortium.