8-K: CenterPoint Energy to Sell Louisiana and Mississippi Natural Gas Assets for $1.2 Billion

CenterPoint Energy has agreed to sell its Louisiana and Mississippi natural gas distribution businesses to Bernhard Capital Partners for $1.2 billion.

Summary

• CenterPoint Energy is selling its natural gas local distribution company (LDC) businesses in Louisiana and Mississippi to Bernhard Capital Partners for $1.2 billion.
• The sale includes approximately 12,000 miles of pipeline and serves about 380,000 customers.
• The transaction values the assets at approximately 32 times their 2023 earnings.
• CenterPoint expects to receive approximately $1 billion in after-tax cash proceeds from the sale.
• The company plans to reinvest these proceeds and approximately $1 billion in future capital expenditures into its other regulated businesses.
• The deal is expected to close by the end of the first quarter of 2025, pending regulatory approvals and other customary closing conditions.
• The sale is not expected to change CenterPoint's targeted non-GAAP EPS growth rate of 8% in 2024, and the mid-to-high end of 6%-8% annually from 2025 through 2030.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment, highlighting the strategic benefits of the sale, the strong valuation, and the company's continued growth prospects. The language used is optimistic and confident.

Positives

• The sale allows CenterPoint to recycle approximately $1 billion in after-tax cash proceeds into its other regulated businesses.
• The company will redeploy approximately $1 billion of future capital expenditures into jurisdictions with less regulatory lag.
• The transaction is not expected to change CenterPoint's targeted non-GAAP EPS growth rate.
• The sale allows CenterPoint to optimize its portfolio of utility operations.

Negatives

• The sale represents a divestiture of assets in Louisiana and Mississippi, which are the second largest natural gas LDCs in those states by customer accounts.
• The company will lose the revenue and earnings from the Louisiana and Mississippi LDC businesses.

Risks

• The transaction is subject to customary closing conditions, including Hart-Scott-Rodino antitrust clearance and state regulatory approvals.
• There is a risk that the transaction may not close by the end of the first quarter of 2025 or at all.
• Disruptions from the transaction could make it more difficult to maintain relationships with customers, employees, regulators, or suppliers.
• The diversion of management time and attention on the transaction could impact other areas of the business.

Future Outlook

The company expects to efficiently recycle approximately $1 billion in after-tax cash proceeds to support its industry-leading capital plan and redeploy approximately $1 billion of future capital expenditures into jurisdictions with less regulatory lag. The transaction will not change the company's targeted non-GAAP EPS growth rate.

Management Comments

• Jason Wells, President and Chief Executive Officer of CenterPoint, stated that the transaction will allow the company to optimize its portfolio and efficiently recycle proceeds.
• Wells also noted that the company remains confident in and committed to its regulated natural gas utilities in Texas, Indiana, Minnesota, and Ohio.

Industry Context

This transaction reflects a trend of utilities optimizing their portfolios by divesting assets in certain regions to focus on core operations and growth areas. It also highlights the continued interest of private equity firms in acquiring infrastructure assets.

Comparison to Industry Standards

• The valuation multiple of approximately 32 times 2023 earnings is a significant premium, suggesting a strong market for utility assets.
• Comparable transactions in the utility sector have seen multiples ranging from the high teens to the low 30s, making this deal on the higher end.
• The redeployment of capital into other regulated businesses is a common strategy among utilities seeking to enhance their earnings power and reduce regulatory lag.
• The targeted non-GAAP EPS growth rate of 6-8% is consistent with the long-term growth targets of many regulated utilities.

Stakeholder Impact

• Shareholders will benefit from the efficient recycling of capital and the company's continued growth strategy.
• Employees in Louisiana and Mississippi will transition to new ownership under Bernhard Capital Partners.
• Customers in Louisiana and Mississippi will experience a change in ownership of their natural gas service provider.
• Suppliers will need to establish new relationships with the new owners of the Louisiana and Mississippi LDC businesses.

Next Steps

• The companies will seek Hart-Scott-Rodino antitrust clearance and state regulatory approvals.
• The companies will work towards closing the transaction by the end of the first quarter of 2025.

Key Dates

Keywords

CenterPoint Energy, Bernhard Capital Partners, natural gas, LDC, divestiture, asset sale, Louisiana, Mississippi, utility, capital recycling