Category Archives: Energy

Hawaiian Electric shareholders to vote on NextEra merger

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Hawaiian Electric Industries is holding a special shareholders meeting in Honolulu on May 12 to vote on the proposed merger with NextEra.

The deal needs the support of 75% of shareholders in order to move forward. In a report last week, investment analysts at Barclays said this would be challenging.

But shareholders don’t have any incentive to vote against the merger. According to Barclays:

If the merger succeeds, there could be a 3 percent upside to Hawaiian Electric’s stock, while a failure could lead to downside risk of about 19 percent.

So investors will lose a significant chunk of change from current levels if the merger doesn’t move forward.

Then I wondered what investment advisors and institutional investors are saying about the Hawaiian Electric-NextEra merger.

Just under half of all Hawaiian Electric stock is held by big institutions or insiders. Any major opposition would pretty much derail the deal. You can find a list of major institutional shareholders here.

I went searching online this morning, and couldn’t find any institutional investors opposed to the deal.

On the other hand, some advisors have publicly urged approval.

Here’s an excerpt from a press release issued Monday, May 4.

HONOLULU, May 4, 2015 /PRNewswire/ — Hawaiian Electric Industries, Inc. (NYSE:HE) (“HEI”) today announced that Glass Lewis & Co (“Glass Lewis”), a leading independent proxy advisory firm, is recommending that HEI shareholders vote “FOR” the proposed merger with NextEra Energy, Inc. (NYSE:NEE). As HEI announced on May 1, 2015, Institutional Shareholder Services (ISS), another leading proxy advisory firm, also recommended that HEI shareholders vote “FOR” the proposed merger with NextEra Energy.

In recommending that HEI shareholders vote “FOR” the proposed merger, Glass Lewis stated:

“We believe the proposed merger of HEI and NextEra is strategically compelling for HEI shareholders, as they could likely benefit from greater diversification and trading liquidity while participating in the future opportunities of the combined entity. We also believe HEI could benefit from NextEra’s clean energy expertise and greater financial resources in executing on its own clean energy initiatives going forward.”*

A few days earlier, on May 1:

HONOLULU, May 1, 2015 /PRNewswire/ — Hawaiian Electric Industries, Inc. (NYSE:HE) (“HEI”) today announced that Institutional Shareholder Services (“ISS”), a leading independent proxy voting and corporate governance advisory firm, is recommending that HEI shareholders vote ” FOR ” the proposed merger with NextEra Energy, Inc. (NYSE:NEE) at HEI’s Special Meeting of Shareholders scheduled for May 12, 2015.

In recommending that HEI shareholders vote ” FOR ” the proposed merger, ISS stated:

“Clean energy has the highest potential growth, and the company has been investing recently to help achieve the state of Hawaii’s 40% clean energy goal by 2030. The NextEra merger will likely prove beneficial, as it is the largest wind and sun renewable energy generator in North America. Hawaiian Electric[‘]s probability of success to implement and execute its clean energy strategy appears much higher if merged with NextEra.”*

The ISS report also stated:
“Given this, and the fact that shareholders are receiving a $0.50 special dividend and spin-off interest in the banking business, a vote FOR this proposal is warranted.”*

And, earlier, the companies announced the Federal Energy Regulatory Commission had also approved the merger.

JUNO BEACH, Fla. and HONOLULU, March 30, 2015 /PRNewswire/

“Approval by the Federal Energy Regulatory Commission represents a significant step toward the completion of our merger,” said Jim Robo, chairman and chief executive officer of NextEra Energy.  “Through our partnership, we will apply our combined expertise and resources to deliver significant savings and value to Hawaiian Electric customers. We will continue to work closely with our partners at Hawaiian Electric in pursuing the remaining necessary approvals to complete the merger and begin to deliver the more affordable clean energy future we all want for Hawaii.”

Impact on shareholders if the Hawaiian Electric merger fails to go through?

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I flagged this document which was filed with the Securities and Exchange Commission today. It is the company’s response to a question asked in the PUC docket reviewing the proposed merger with NextEnergy.

The following question was posed by a party that is an intervenor in the proceeding before the Hawaii Public Utilities Commission to review the proposed merger between Hawaiian Electric Industries, Inc. (HEI) and NextEra Energy, Inc.  HEI’s response follows the question below.
 
Applicants’ Response to LOL-IR-49
DOCKET NO. 2015-0022
Respondent: Hawaiian Electric Companies
 
LOL-IR-49
 
Ref: According to the HEI 10-K filed on February 26, 2015, ITEM 1A. RISK FACTORS. Since stock prices jumped upon the merger announcement and have remained high and stockholders can currently sell at that high price, how can they be negatively impacted if the merger falls through?
 
Response:
 
As background, Securities and Exchange Commission rules require HEI to provide “risk factor” disclosures in its annual report on Form 10-K.  The purpose of the risk factor disclosures is to provide investors with a warning about the array of possible circumstances or events that could make investing in HEI’s securities risky.  Accordingly, risk factors serve as “cautionary language” disclaimers for HEI in the event that such circumstances or events materialize and HEI’s securities are negatively impacted as a result.  As such, risk factors do not necessarily confirm what events or circumstances HEI believes will likely occur, but rather what conceivably may occur that could present certain risks to the company.  The responses provided herein that address Life of the Land’s questions regarding “risk factors” adopted from HEI’s filings are not intended to modify, and do not modify, such filings.
 
The referenced 10-K section provides a summary of the kinds of risks that could impact the stock price and the financial results of HEI, and how HEI may be adversely affected if the merger is not completed.  While many factors affect the trading price of HEI common stock, HEI believes it is reasonable to assume that the range in which the stock has traded since the announcement of the merger and spinoff reflects the expected value of the merger consideration, special cash dividend and the ASB Hawaii stock proposed to be distributed in the spinoff, as well as investors’ views as to the likelihood that the merger and spinoff will be completed and the expected timing of such completion.
 
To the extent that a holder of HEI common stock desires to sell its shares prior to completion of the merger and the spinoff, HEI believes that such a sale can only occur at a price at which there is a buyer willing to purchase such shares.  HEI further believes it is reasonable to assume that, if investors widely believed that the merger will not be completed for any reason, the price at which a seller of HEI common stock could find a willing buyer would in all likelihood be lower than it would be if the merger is expected to be completed.  Holders of HEI common stock at the time such expectation arose could be harmed, depending on the purchase price at which such holders acquired their shares of HEI common stock.
 
As to the matter of individual shareholders, each shareholder has unique and personal circumstances which the Companies would not be able to comment on.  The price of HEI shares has vacillated with a variety of industry, company and macroeconomic factors since the announcement of the merger and spin-off transactions.  The share price movement has also been (and will continue to be) a function of the value of NextEra Energy shares given the agreed exchange ratio.  Finally, HEI shares are also composed of valuation owing to the ownership of American Savings Bank (“ASB”) — and that component of the valuation will continue to change based on a variety of factors affecting the banking sector and ASB’s results in particular.  The Companies are not able to comment on whether HEI’s share price is now (or was at the time of announcement of the merger/spin-off) “high” or “low,” “fairly valued” or otherwise.

Proxy materials detail Next Era takeover of Hawaiian Electric

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Hawaiian Electric Industries’ proxy statement covering the proposed merger with Next Era Energy, to be voted on at a special shareholders meeting scheduled in Honolulu on the morning of May 12, 2015. The proxy statement was mailed to shareholders “on or about March 30, 2015” and is now available online.

And shortly after the proxy materials were sent to stockholders, the first robocalls urging shareholders to support the deal were reported.

This official document explains and makes the case for the merger from the company’s perspective. There are lots of interesting tidbits buried in here. For example, it contains a section describing the analysis of the deal by J.P. Morgan Securities LLC, retained as HEI’s financial advisor. This starts on page 44.

Then this chart caught my attention. It summarizes what several top HEI executives will receive if the merger goes through. Click on the chart for a better view.

In brief, it shows CEO Connie Lau will walk away from the deal approximately $11.5 million wealthier. Not too shabby.

HEI-NEE merger

In any case, I haven’t pored over the proxy materials yet. So I would encourage readers to do so and share the nuggets of information that you find relevant and interesting.

What about Robbie Alm?

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Henry Curtis (Ililani Media) ran an interesting piece a couple of days ago, “Embedded HECO Lobbyist in Governor Ige’s Office.”

The “lobbyist” referred to is Robbie Alm, a former Hawaiian Electric executive who resigned a couple of years ago.

Here’s Henry’s summary:

Robbie Alm works in the Governor’s Office as Legal Counsel where he helps screen potential candidates for administrative positions. At the same time Robbie Alm is being paid by Hawaiian Electric Company for “consulting services.”

The article reviews Alm’s background.

Robbie Alm graduated from the University High School in 1969, received a Bachelor of Arts in Political Science with distinction from the University of Hawaii at Manoa in 1973 and a Juris Doctor of Law with distinction from the University of Iowa, School of Law in 1975.

He worked as a Deputy Administrative Assistant in the Washington D.C. office of U.S. Senator Daniel K. Inouye for almost three years, went on to serve as the Director of the Hawaii Department of Commerce and Consumer Affairs (DCCA) for almost eleven years and then spent eight years at First Hawaiian Bank where he became the Executive Vice President.

Robbie Alm then spent 12 years at Hawaiian Electric Company (HECO) reaching the number two position as the Executive Vice President. He was widely credited with being the driving force behind the 2008 Hawaii Clean Energy Initiative (HCEI).

The article prompted @blakemcelheny to tweet a question to several people, including me: “What about Robbie Alm?”

Well, to tell you the truth, if I were governor, I would welcome the chance to bring Robbie Alm on board.

Most people today don’t remember that Alm might be called the father of Hawaii’s public records law, the Uniform Information Practices Act (Chapter 92F).

Back in 1988, Alm was director of the Department of Commerce and Consumer Affairs during Gov. John Waihee’s administration. He was tasked with supporting a special committee appointed to review and make recommendations for how to strengthen the public’s right to access government records while balancing the privacy rights of individuals. The committee also had the support of a contracted attorney, but in my view, Alm was the driving force that kept the work on track and helped block attempts to throttle public access.

The original law that was passed following the committee’s recommendations did not have all of the loopholes and exemptions of the current law, which have been added by the legislature over the years, prodded by interest groups opposed to transparency.

That original version was considerably stronger, and Alm played a major role in getting it drafted and passed into law.

During his corporate years, Alm has remained an advocate of community involvement, has led outreach efforts in attempts to address controversial issues rather than simply plowing over communities, and has always been a straight shooter.

While a HECO executive, he was registered as one of the company’s lobbyists, and he used his community outreach to pitch the company’s positions. Does that change my assessment of Alm?

Not in the least.

And those consulting fees from HECO? Clearly a thinly disguised severance package for a former top exec.

Am I offended that he’s working for this governor?

No.

Do I expect flack for saying this out loud? Yes.