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Plan to buy HEI draws skepticism

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A startup company’s proposal to take over Hawaii’s major power supplier and take it private faces so many hurdles that some experts question whether it will ever get off the ground.

Kuokoa Inc.’s still-in-the-works proposition to acquire Hawaiian Electric Industries Inc. caused a brief surge in the company’s stock price yesterday but otherwise was greeted with widespread skepticism in and outside of Hawaii.

"It sounds pretty grandiose," said Montana-based stock analyst Jim Bellessa, who gave Kuokoa’s plan, as envisioned by the startup venture, little chance of succeeding.

His sentiments were echoed by other analysts, energy experts and even a Honolulu business development executive who said he was asked to pay $20,000 to join the venture as a founding board member. He declined.

"This is just a comedy," said Enterprise Honolulu President Pono Shim, who met with Kuokoa’s chief executive, Roald Marth, in September.

Marth told the Star-Advertiser yesterday he welcomes the skepticism that has greeted the proposal since he disclosed it publicly Thursday. He said debating renewable energy issues is critical for Hawaii’s future.

"If this were easy, we already would have done it," Marth said of his plan.


» Major subsidiaries: Hawaiian Electric Co., Hawaii Electric Light Co., Maui Electric Co., American Savings Bank

» No. of employees: 3,453*

» Market capitalization: $2.33 billion

» Stock price: $24.76

» Shares outstanding: 94.157 million

* As of 2009

Source: Bloomberg News


Kuokoa was formed recently for the purpose of acquiring HEI and taking it private so the utility could more quickly reinvent Hawaii’s power-generation system, now largely dependent on fossil fuel, to one entirely reliant on renewable energy, he said.

Marth envisions the venture spending roughly $35 billion over 10 years to rid HEI of its expensive oil dependency, sell its American Savings Bank subsidiary, lower the statewide electricity rate and build free Wi-Fi access into the utility’s smart grid.

Among those who have embraced that vision is Ted Peck, until yesterday the state’s energy administrator. Peck quit that job to join Kuokoa as its president.

While Marth lauded the people operating HEI, describing it as a well-run utility, he said the company is not moving fast enough toward its clean-energy goals because of the difficulty as a publicly traded company in investing the billions needed to make the conversion.

Marth told the Star-Advertiser that his group would offer an undisclosed premium over the company stock price. Based on yesterday’s closing price, the company has a market value of about $2.3 billion.

HEI issued a brief statement yesterday about Marth’s proposal.

"We were contacted by Mr. Marth for the first time last night by e-mail but have had no discussions," the company said. "As a matter of policy, HEI will not comment further on the existence or consideration of an offer in the event we receive one."

Marth disputed the HEI statement, saying he had e-mailed Robbie Alm, a company executive, several weeks ago. Alm could not be reached for comment. Peck and Kuokoa Chairman Richard Ha, owner of Hamakua Springs Country Farms on the Big Island, also contacted utility board members previously, Marth added.

Marth said he also has contacted U.S. Sen. Daniel Inouye to brief him on the company’s plans and has a meeting scheduled with Inouye’s office later this month. But Inouye spokesman Peter Boylan said the senator has not received a briefing and has no intention of meeting with him.

Ha met with Gov. Neil Abercrombie this week, but it was a brief "meet and greet" and the proposal was not discussed, a governor’s spokeswoman said. Abercrombie has not taken a position on Kuokoa’s plan, added Donalyn Dela Cruz.

HEI, as parent of Hawaiian Electric Co. on Oahu, Hawaii Electric Light Co. on the Big Island and Maui Electric Co., provides power to about 95 percent of the state’s population.

Among the many regulatory, market and technical hurdles Kuokoa faces is convincing Wall Street’s investment banking community that Kuokoa’s senior management team has the expertise to pull off such a sizable deal and to oversee the utility, several financial experts and analysts said.

"Right there is your biggest hurdle," said Karl Stahlkopf, a former Hawaiian Electric executive who now focuses on financing renewable energy projects.

Marth said getting the financing will not be a problem. "The one thing we’re not worried about is actually the money."

He also said Kuokoa intends to rely on the utility’s senior executives to help operate the company. "Frankly, most of them we think are terrific," he said.

The analysts also questioned whether HEI’s power system can be entirely weaned from fossil fuels within 10 years and whether Kuokoa can lower electricity rates while incurring huge debt to carry out its plan.

"I don’t know how you make the math work," said David Parker, an analyst with Robert W. Baird & Co. in Tampa, Fla.

Henry Curtis, executive director of the environmental group Life of the Land, said the Kuokoa proposal seems to be the most sophisticated of the various HEI takeover ideas that have surfaced in recent years.

He also does not see getting regulatory approval from the Public Utilities Commission as a major hurdle, noting that a group that knew little about running a utility received the OK to acquire the electric company on Kauai in the early 2000s. Curtis said he cannot see the PUC saying no to billions of dollars of new investment in Hawaii.

Marth said his group is hoping to negotiate an acquisition with HEI’s board, but if the board resists, the group would take its offer directly to shareholders, spurring a proxy fight. Marth dismissed the notion of a hostile takeover.

"Kuokoa is all about aloha," he said.


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