A JPMorgan Fund Making Its Biggest Utility Bet Yet With El Paso
(Bloomberg) -- A JPMorgan Chase & Co. investment fund that has been steadily snapping up utilities over the years is about to make its biggest bet on the sector yet.
On Monday, JPMorgan’s Infrastructure Investments Fund reached an agreement to buy the Texas power company El Paso Electric Co. for $2.78 billion in cash. It’s rare to see a bank’s fund involved in buying an electric utility outright. But in this case, the deal expands upon a 19-company portfolio of energy, water and infrastructure businesses that already includes natural gas distributor Summit Utilities and solar and wind power firm Novatus Energy.
Landy Gilbert, a managing director of JPMorgan Asset Management, said in a phone interview Monday that El Paso Electric will become the fund’s “flagship investment” in the U.S. The deal speaks to the core of its strategy, he said, “providing essential services.”
While Gilbert declined to discuss how the fund came about choosing El Paso Electric as an investment, Texas is home to some of the world’s most prolific shale fields, and power-hungry oil and natural gas drillers have sent electricity demand surging there in recent years. A different Texas utility, Oncor Electric Delivery Co., was the subject of a multibillion-dollar bidding war that attracted the likes of Warren Buffett and billionaire investor Paul Singer just two years ago.
For El Paso Electric, which supplies power to about 428,000 customers in West Texas and southern New Mexico, the deal may be a long time coming. The company has been rumored as a takeover target for more than a year and Chief Executive Officer Mary Kipp told investors last year that it would consider offers. Shares jumped a record 14% Monday, closing at $66.08.
Under the agreement with JPMorgan, El Paso Electric will remain independently run with Kipp at the helm. Kipp said in an interview Monday that the deal would help her company navigate a rapidly changing industry, pointing to New Mexico’s goal of getting all of its power from carbon-free resources by 2045.
“When we looked at what IIF had done with renewables, we thought they would be a perfect partner to get us there,” Kipp said.
Analysts called the company a sound buy for JPMorgan. “There’s good customer growth and a very consistent need for infrastructure additions,” said Christopher Ellinghaus, a utility analyst at Williams Capital Group.
The companies set a June 1, 2020, deadline to close the takeover, with a potential three-month extension. JPMorgan faces a $170 million breakup fee if it can’t finish the deal. El Paso’s breakup fee is $85 million. The acquisition requires approval from the utility’s shareholders, as well as state and federal regulators.
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