After its board vetted potential counter offers from other sources and found nothing better, Puget Sound Energy (PSE) Dec. 17 filed for approval of its $7.4 billion merger with a private equity consortium with the Washington Utilities and Transportation Commission. The merger with North American infrastructure investors led by a New York City unit of Australian-based Macquarie Infrastructure Partners (MIP) was announced Oct. 26.

The Washington state regulatory commission and the Federal Energy Regulatory Commission (FERC) are the two principal regulators from which PSE needs approval, along with a favorable vote by shareholders. The deal calls for the consortium to acquire all PSE shares for $30/share in cash.

Steve Reynolds, CEO of PSE and its parent, Puget Energy, said the companies had made "significant progress" in the past few weeks to allow for last week's filing to the state commission. The companies received notice of early termination of the required waiting period under the federal Hart-Scott-Rodino Act, allowing Puget Energy to complete the sale to the consortium of the 12.5 million shares for an aggregate offering price of about $296 million, PSE said.

In conjunction with the transaction, which will be funded by a combination of private shareholder capital ($3.2 billion), new debt ($1.6 billion) and assumption of Puget's existing debt ($2.6 billion), the consortium committed to an initial investment of about $300 million in 12.5 million shares of newly issued Puget Energy common stock by way of a separate private placement priced at $23.67/share to fund the company's ongoing construction program and working capital needs. "It is anticipated this private placement will occur prior to the end of this year," Puget said.

Along with Macquarie, the private investors buying the Bellevue, WA-based natural gas and electric utility include the Canada Pension Plan Investment Board and British Columbia Investment Management Corp. The consortium also includes Alberta Investment Management, Macquarie-FSS Infrastructure Trust and Macquarie Group Ltd.

A go-shop process in which the board was encouraged to seek competing offers through Dec. 10 has confirmed for PSE that partnering with the private equity consortium is the way to go, Reynolds said. In announcing the state regulatory filing he said no proposal in the process could reasonably be expected to result in "a proposal superior to the definitive merger agreement with the consortium."

The Puget Energy board, with the help of financial advisor Morgan Stanley & Co. Inc., solicited interest from approximately 20 potential purchasers, including U.S. utility companies, non-U.S. utility companies and other energy companies and infrastructure investors, PSE said. Puget Energy entered into confidentiality agreements with three of the prospective buyers and provided confidential information to them regarding Puget and PSE.

PSE is a combination utility serving the rapidly growing western area of the state of Washington outside Seattle, which has a municipal electric utility. It faces considerable capital infrastructure expenditures for serving more than 1 million electric and 721,000 natural gas utility customers. A key benefit of the proposed acquisition from the company's perspective are provisions for obtaining $5 billion in capital over the next five years from the Macquarie-led consortium, Puget said.

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