Puget Energy moves a step closer to buyout

Puget Energy is one step closer to a buyout.

Shareholders of Puget Sound Energy's parent company voted Wednesday in favor of a takeover by Australian and Canadian investors. But the campaign to close the $7.4 billion deal is far from over, pending an affirmative nod from state and federal regulators.

At a meeting in the Bellevue headquarters of the state's largest electric and gas utility, Chief Executive Stephen Reynolds said 97 percent of voting shareholders approved the takeover, which would pay them $30 per share. About 80 percent of the company's 129 million shares were represented, he said.

The vote is "just one step in the ongoing process" facing the planned acquisition, Reynolds said. The deal must pass muster with the Washington Utilities and Transportation Commission, which will hold public hearings starting May 15. The Federal Energy Regulatory Commission and other federal agencies also have a say.

The company expects to complete regulatory approvals in the second half of 2008.

Macquarie Infrastructure Partners, which last October led the bid to acquire Puget Energy, has said it plans to stick to the company's current growth plan and keep its management team in place.

"It is not a merger intended to replace people" or produce layoffs, Reynolds told a hall packed with more than 200 Puget Energy shareholders. "It's intended to provide financial strength."

"It will be business as usual, but better," said Macquarie chief executive Christopher Leslie. "Do we have plans that are different from what the company's dream might be? Absolutely not."

The takeover has been cast by Puget Energy's leadership as an opportunity to get a backer with pockets and patience deep enough to bankroll massive infrastructure investments the utility says are necessary. Puget Sound Energy currently serves 1 million electricity customers and 729,000 natural gas customers.

Many analysts and proxy-advisory firms have given their blessing to the deal, which offered shareholders a 25 percent premium over the stock's value the day it was announced.

Nevertheless, the proposal has raised concerns among the utility's customers about potentially higher rates. And some shareholders at the meeting said they would have liked a higher price for their stock.

"I liked the idea of owning the local power company," said Charles Kirschbaum of Auburn, a retired electronics technician who has owned Puget Energy stock for 15 years. "Now they took it all away for a meager $30 a share."

Reynolds downplayed these concerns, saying the price was fair. "The opportunity to have us go over $30 a share on a going-forward basis was not very great," he said.

Dividends will continue to be paid until the transaction closes.

Reynolds, who will continue to lead the company, stands to receive a $4.4 million cash payment upon the transaction's closing, plus $3.4 million in tax compensation, and other payments. In addition, he would cash in his outstanding stock options, for which he would gain $2.3 million.

The company says it needs to invest some $5 billion in infrastructure over the next five years to keep up with growth in the region and with government mandates to increase its use of renewable electricity sources. Puget Energy will spend on building more wind farms, natural gas-fired plants, and basic infrastructure such as pipes and wires.

The utility says it must add 1,300 average megawatts of new energy by 2014-2015, enough to power a city like Seattle.

The buyout would give it the financial backing to add that capacity without relying on capricious stock markets, said Reynolds.

Macquarie Infrastructure Partners is part of Australia's sprawling Macquarie Group. Three Canadian pension funds — the Canadian Pension Plan Investment Board, the British Columbia Investment Management Corporation, and Alberta Investment Management — are also part of the consortium bent on acquiring Puget Energy.

Last year Macquarie led the acquisition of Pittsburgh-based Duquesne Light, a regulated electric utility. It also runs ports and water and gas providers in Canada and the U.S.

The Macquarie deal comes amid increasing private equity interest in energy providers, which can provide consistent cash returns despite being subject to price controls.

Last year, prominent private equity firm Kohlberg Kravis Roberts (KKR) led a consortium that bought Texas' largest utility, TXU, for $32 billion. Some shareholders thought the utility was being sold too cheaply, but market turmoil helped pave the way for the takeover. At the time of their proposal, KKR executives told Texas legislators that they intended to keep the company for at least five years.

Macquarie's Leslie said the nature of the consortium buying Puget Energy guarantees that its commitment will be long-lasting.

"Pension funds like utilities because they're long term," Leslie said.

Ángel González: 206-515-5644 or agonzalez@seattletimes.com