NextEra offering premium price for HEI, analyst says

The $4.3 billion that Juno Beach, Fla.-based NextEra Energy Inc. is offering to pay for Hawaiian Electric Industries is a premium price for an electrical utility, said an analyst at Morningstar Inc., a Chicago-based investment research company.

After negotiating the sale of HEI for about seven months, NextEra and HEI announced in December the two companies agreed on a $4.3 billion price for the parent company of the state’s three major utilities: Hawaiian Electric Co., Maui Electric Co. and Hawaii Electric Light Co. HEI agreed it would spin off its banking subsidiary, American Savings Bank, as part of the deal.

NextEra Energy CEO Jim Robo approached Connie Lau, CEO of HEI, in May, according to Next­Era’s filing with the U.S. Securities and Exchange Commission. In January the two companies filed a joint application for approval from the state Public Utilities Commission, expecting the deal to close by the end of 2015. The PUC estimated it could take from a year to 18 months to review the sale.

HEI did not come cheap as the overall price and tax liability Next­Era agreed to pay for the American Savings Bank spinoff was unusual for a utility acquisition, said Charles Fishman, an analyst at Morningstar.

"NextEra paid a premium price," Fishman said. "Hawaiian Electric did not go cheap in the world of utility acquisition."

Lau will be paid top dollar, walking away with an estimated $10.66 million in compensation if the sale is completed as planned. Lau would be paid an estimated $6.85 million in cash, $3.03 million in stock, $591,000 toward a pension and $193,000 in benefits, according to NextEra’s filing with the SEC.

Fishman applauded Lau’s negotiating skills for her shareholders.

"(NextEra) paid a very rich price for the utility in itself," Fishman said. "Connie Lau did a great job for shareholders. She got top dollar when her and the board decided to sell. She did a great job. She got every last penny she could get for shareholders."

NextEra agreed to give holders of Hawaiian Electric stock 0.2413 shares in Next­Era plus a 50-cent one-time dividend for each share they own. Including an estimated value of $8 per share for the ASB spinoff, the deal values Hawaiian Electric at about $33.50 per share, the companies said. That gives a total value of about $4.3 billion.

After negotiations, NextEra agreed to pay about $165 million for the expected corporate tax liability of the spinoff of American Savings Bank.

"NextEra from Day One didn’t want the bank," Fishman said. "When they did the spinoff, it was going to be a taxable event, and Next­Era stepped up."

NextEra paid the steep price for Hawaii’s major electrical utilities because it would help the company’s renewable energy development, Fishman said.

"NextEra is the largest wind owner-operator in the U.S.," he said. "It gives them a foothold in a place at the table for the discussion that is going on. Obviously, renewables are critical to Hawaii."

Combining with such a large renewable energy company like NextEra will be beneficial for Hawaii, Fishman added.

"I think it is a good thing for Hawaii, too," he said. "Someone with a bigger balance sheet, and more experience in renewables — it could work out great."