Minnesota Power parent company explored sale starting in 2022 ahead of $6.2 billion deal

Allete leaders were interested in selling the business for more than a year before the Duluth-based energy company announced a $6.2 billion deal with a New York infrastructure firm this spring.

The parent company of Minnesota Power recently filed hundreds of pages of disclosures ahead of an Aug. 21 shareholder vote over the proposed sale to Global Infrastructure Partners (GIP) and the Canada Pension Plan (CPP) Investment Board.

The filing sheds light on how and why the deal came together and what Allete executives — who stand to financially benefit from the sale — were thinking in the run-up to it all.

Here’s what we learned from the documents:

Allete was not approached by outside firms about the eventual $6.2 billion deal but rather asked around for prospective buyers.

Leadership got serious about the prospect in October 2022 as Allete’s board and top executives stared down the prospect of raising enormous amounts of money to pay for a transition away from fossil fuels.

A few months later, in March 2023, the board asked J.P. Morgan to reach out to potential buyers, especially infrastructure and pension firms with experience in the utility sector. The board said those types of companies would have deep pockets to fund an infrastructure buildout instead of relying on volatile public markets.

The board also felt pension and infrastructure funds would be more willing to make commitments that would appease Minnesota and Wisconsin regulators, such as promising to keep headquarters in Duluth.

In May, Allete CEO Bethany Owen has said the company plans to raise about $4.3 billion in the next five years for energy generation and other infrastructure like transmission lines. That’s well above Allete’s market value of roughly $3.4 billion.

J.P. Morgan met with seven pension and infrastructure funds between March and April of 2023. Five expressed initial interest.

Once GIP and CPP were the last suitors standing, Allete didn’t take the first offer thrown its way. The company didn’t take the second proposal either.

On Feb. 2, Allete turned down a joint offer from GIP and CPP for $62.50 per share. Two days later, the potential buyers made an offer at $64 per share that Allete also rejected.

Allete finally accepted the $67 per share offer months later, in April. GIP would own about 60% of Allete should the deal close next year and take the company private. The New York-based investment firm manages about $112 billion.

BlackRock, the world’s largest asset manager, announced a deal to buy GIP in January when the infrastructure company was negotiating with Allete. BlackRock’s involvement has raised concerns among some consumer advocates that the megafirm’s growing power could stifle competition.

Allete said in filings it did not talk with BlackRock about being potentially purchased by GIP nor did it strike any agreement with BlackRock about the proposed transaction.

GIP and CPP have publicly promised to keep company headquarters in Duluth, maintain staffing levels, keep Owen and the leadership team and quickly told Minnesota regulators they would not try to recoup money from utility customers to cover the costs from the transaction, such as the acquisition premium. That is the difference between the price GIP will pay to buy Allete and the company’s market value.

The U.S. Securities and Exchange Commission filings offer a few more specifics, such as a promise to maintain historic levels of spending on economic development and charity in Minnesota and Wisconsin for five years. GIP and CPP will appoint at least one member of the board from Minnesota and one from Wisconsin.

The buyers agreed that nonunion workers would get wage, benefit and position protections, generally for two years. And the buyers also agreed to honor existing collective bargaining agreements with union employees.

Those promises will be reflected in an application to the Minnesota Public Utilities Commission later this month. The five-member PUC must approve the sale and has already asked for GIP and CPP to address what the transition would mean for local workers at Minnesota Power, Allete’s electric utility serving Duluth and customers around the Arrowhead region including taconite mines.

Company executives hold stock in Allete, so they’ll make a profit off the sale like any other shareholder. Owen, the CEO, has 27,481 shares, which means she would make about $1.8 million if the deal closes.

GIP and CPP have promised to keep Owen on. But if they did terminate her shortly after the sale, Owen would get severance and other “golden parachute” compensation worth more than $7 million in total.

Chief Financial Officer Steven Morris and Vice President Nicole Johnson each have nearly 11,000 shares that would be worth more than $733,000 if the sale closes.