DEFM14A: ALLETE, Inc. to be Acquired by Canada Pension Plan Investment Board and Global Infrastructure Management in $67.00 Per Share Deal

ALLETE, Inc. is set to be acquired by Alloy Parent LLC, jointly owned by Canada Pension Plan Investment Board and Global Infrastructure Management, for $67.00 per share in cash.

Summary

• ALLETE, Inc. has entered into a merger agreement with Alloy Parent LLC, a company jointly owned by Canada Pension Plan Investment Board and Global Infrastructure Management.
• Under the agreement, Alloy Merger Sub LLC, a subsidiary of Alloy Parent LLC, will merge with ALLETE, with ALLETE continuing as the surviving corporation and a subsidiary of Alloy Parent LLC.
• ALLETE shareholders will receive $67.00 in cash for each share of common stock they own.
• This represents a premium of approximately 19% over the unaffected closing price on December 4, 2023, and 22% over the 30-day volume weighted average price prior to that date.
• The transaction is expected to close in mid-2025, pending shareholder and regulatory approvals.
• Following the merger, ALLETE's common stock will be delisted from the New York Stock Exchange.
• The board of directors of ALLETE unanimously recommends that shareholders vote in favor of the merger.
• The maximum estimated total amount of funds required to complete the Merger is approximately $4.43 billion.
• Parent and Merger Sub expect this amount to be funded through a combination of debt financing in an aggregate amount of up to $700 million and equity financing in an aggregate amount of up to approximately $3.58 billion.

Sentiment

Score: 7

Explanation: The document is generally positive, outlining the benefits of the merger for shareholders and the company. However, it also acknowledges potential risks and uncertainties associated with the transaction.

Positives

• Shareholders will receive $67.00 per share in cash, a premium over the recent trading price.
• The board of directors unanimously recommends the merger.
• The merger provides access to capital for ALLETE's Sustainability-in-Action strategy.
• The agreement includes commitments to maintain headquarters in Duluth and Superior, and maintain historic levels of economic development and charitable contributions.
• The merger is not subject to a financing condition.

Negatives

• ALLETE's common stock will be delisted from the New York Stock Exchange.
• Shareholders will no longer participate in the company's future earnings or growth.
• The receipt of cash in exchange for shares of Company Common Stock pursuant to the Merger will generally be a taxable transaction for U.S. federal income tax purposes.

Risks

• The merger is subject to regulatory approvals, which may impose conditions or delay the closing.
• The merger agreement may be terminated under certain circumstances.
• The company is subject to operating restrictions during the pendency of the merger.
• The company may face difficulties in maintaining relationships with customers, employees, regulators, or suppliers while the merger is pending.
• The company is named as a defendant in a complaint filed by a purported Company shareholder in the United States District Court for the Southern District of New York.

Future Outlook

The merger is expected to be completed in mid-2025, subject to shareholder and regulatory approvals and other customary closing conditions.

Management Comments

• The board of directors of ALLETE unanimously recommends that shareholders vote in favor of the merger.

Industry Context

The acquisition reflects a trend of infrastructure and pension funds investing in energy companies to support long-term capital needs and sustainability initiatives.

Comparison to Industry Standards

• The proxy statement includes fairness opinions from J.P. Morgan Securities LLC and Houlihan Lokey Capital, Inc.
• The financial advisors used comparable company analysis and discounted cash flow analysis to assess the fairness of the merger consideration.
• The comparable companies included IDACORP, Inc., Portland General Electric Company, Black Hills Corporation, NorthWestern Energy Group, Inc., Avista Corporation, MDU Resources Group, Inc., Algonquin Power & Utilities Corp. and Otter Tail Corporation.
• The selected transactions included Enbridge Inc.'s acquisition of Dominion Energy Inc.'s gas distribution companies and Infrastructure Investments Fund's acquisition of South Jersey Industries, Inc.

Legal Proceedings

• The Company and the Board are named defendants in a complaint filed by a purported Company shareholder in the United States District Court for the Southern District of New York.
• The complaint alleges that the Company and the Board violated certain federal securities laws based on various alleged omissions and/or material misrepresentations of material information contained in the preliminary copy of this proxy statement filed by the Company on June 20, 2024, and revised on June 21, 2024.
• The complaint seeks to enjoin us from proceeding with or consummating the Merger until such time as defendants remedy the alleged disclosure deficiencies, and, to the extent that the Merger is implemented before relief is granted, seeks to have the Merger rescinded.
• The plaintiff also seeks monetary damages and an award of plaintiffs costs, including attorneys and expert fees.
• The Company has also received certain demand letters from purported shareholders making similar allegations and requesting similar additional disclosures.

Stakeholder Impact

• Shareholders will receive a premium for their shares.
• The company will have access to capital for its Sustainability-in-Action strategy.
• The agreement includes commitments to maintain headquarters in Duluth and Superior, and maintain historic levels of economic development and charitable contributions.
• The agreement includes commitments to provide each Company nonunion employee who continues employment with us as of the Effective Time with certain protections (generally for the two-year period following the Merger).

Next Steps

• The Company will hold a Special Meeting for shareholders to vote on the merger proposal.
• The Company and Parent will seek regulatory approvals from various governmental entities.
• The parties will work to satisfy the remaining closing conditions and complete the merger in mid-2025.

Key Dates

Keywords

merger, acquisition, ALLETE, Global Infrastructure Management, Canada Pension Plan Investment Board, shareholders, regulatory approvals, delisting, premium, energy, utility