(Reuters) - Utility El Paso Electric Co will be acquired by an infrastructure fund for $2.78 billion in an all-cash deal, the firms said on Monday.
Infrastructure Investments Fund (IIF), which is advised by J.P. Morgan Investment Management, will pay $68.25 for each share of El Paso Electric, which represents a premium of 17.3% to the company’s Friday close.
Infrastructure and pension funds have increasingly been investing in power generation assets and utility firms, drawn by the sector’s steady returns which match these funds’ low-risk investment approach.
The deal for El Paso, which provides electricity to about 428,000 customers in the Rio Grande valley in West Texas and southern New Mexico, is worth $4.3 billion including debt.
Shares of the company surged 13.6% to trade at $66.12 at 1400 ET (1800 GMT).
Mary E. Kipp, president and chief executive of El Paso, told Reuters that smaller utilities are being squeezed by the same rising regulatory and cyber-protection costs faced by all players in the industry but lack the economies of scale from which larger firms benefit.
The deal with IIF would help address these challenges, as well as provide expertise in assisting El Paso generate more power from renewable sources, Kipp added.
In March, New Mexico’s governor signed a law requiring 100% carbon-free electricity generation in the state by investor-owned utilities by 2045.
El Paso and IIF have also earmarked $21 million that will be credited to customers’ bills over a 36-month period, the statement said. This continues the trend within mergers and acquisitions of utilities, where consumers are given rebates on their bills as a way to show to regulators that the benefits of a transaction flow down to billpayers.
The utility will continue to operate as an independent entity upon closing of the deal, expected in the first half of next year, and remain headquartered in El Paso, Texas.
Lazard is serving as financial advisor to El Paso, while IIF’s financial advisor is BofA Merrill Lynch.
Reporting by Debroop Roy in Bengaluru and David French in New York; Editing by Shailesh Kuber and Cynthia Osterman