01—Abstract
Summary
Summary of the 8-K filed February 20, 2024. Cited figures are marked; the original filing is the authoritative source.
CenterPoint Energy (CNP) has agreed to sell its Louisiana and Mississippi regulated natural gas local distribution company (LDC) businesses to a group of Delta Utilities entities affiliated with Bernhard Capital Partners, a private equity firm, for $1.2 billiona, subject to customary post-signing adjustments for net working capital, regulatory assets and liabilities, and capital expenditures.
The agreement was signed February 19, 2024 and announced February 20, 2024. The purchase price represents roughly 32xb 2023 Louisiana and Mississippi LDC earnings, a rich multiple that management frames as a value-accretive exit. The businesses serve about 380,000 metered customers through roughly 12,000 miles of main and represent less than 4% of CenterPoint's overall rate base.
Management expects approximately $1 billionc of after-tax cash proceeds to be recycled into the company's electric and natural gas footprint, with a similar amount of planned future capital expenditures reallocated from Louisiana and Mississippi to jurisdictions with less regulatory lag. Management says the deal is intended to avoid issuing common equity, and it reiterated its 2024 non-GAAP EPS growth target of 8% and its 6%-8% annual target from 2025 through 2030 (mid-to-high end). The company notes this is the fourth time in recent years it has recycled sale proceeds into regulated businesses.
Closing is subject to HSR antitrust clearance and approvals from the Louisiana and Mississippi Public Service Commissions, with no financing condition. Closing is expected toward the end of Q1 2025.
The agreement can be terminated if closing has not occurred within 15 months of signing (or 6 months if only regulatory approval remains). Investors should monitor regulatory approval timing and the final net proceeds after adjustments, since the filing provides limited detail on those items.
02—Key points
Key Highlights
- Sale of Louisiana and Mississippi natural gas LDCs to Delta Utilities entities (Bernhard Capital Partners) for $1.2 billion, subject to purchase price adjustments
- Valuation of approximately 32x 2023 Louisiana and Mississippi LDC earnings
- Expected after-tax cash proceeds of roughly $1 billion to be recycled into electric and natural gas operations, avoiding common equity issuance
- Approximately $1 billion of planned future capex reallocated from Louisiana and Mississippi to jurisdictions with less regulatory lag
- Reiterated 2024 non-GAAP EPS growth target of 8% and 6%-8% annual target (mid-to-high end) from 2025 through 2030
- Closing expected toward end of Q1 2025, subject to HSR clearance and Louisiana and Mississippi PSC approvals; no financing condition
- Assets represent less than 4% of CenterPoint's overall rate base; ~380,000 customers and ~550 employees transfer with the business
03—Questions
Frequently Asked Questions
Will the sale change CenterPoint's earnings growth outlook?
No. Management states the sale, along with reinvestment of the proceeds and redeployed capital, will not change the targeted 8% non-GAAP EPS growth rate for 2024 or the mid-to-high end of 6%-8% annual growth from 2025 through 2030. 2024 non-GAAP EPS guidance excludes the expected gain or impact from the divestiture.
What is the financial impact of the sale on the balance sheet and funding needs?
The company expects roughly $1 billion in after-tax cash proceeds, which it plans to recycle into its regulated electric and natural gas utilities rather than fund through issuance of common equity. The filing does not quantify the expected book gain or the net proceeds after purchase price adjustments.
What could prevent the deal from closing?
Closing depends on expiration or termination of the Hart-Scott-Rodino waiting period, approval from the Louisiana and Mississippi Public Service Commissions, no Material Adverse Effect, and accuracy of representations and compliance with covenants. The agreement may be terminated if closing has not occurred within 15 months of signing, or within 6 months if only regulatory approval remains.
Why is CenterPoint selling these assets, and why does the valuation matter?
Management says the sale allows it to optimize its utility portfolio and redeploy capital into jurisdictions with less regulatory lag, enhancing long-term earnings power. The roughly 32x earnings multiple suggests strong value realization for the buyer relative to the assets' earnings, which management presents as an efficient way to recycle capital.
Does this sale signal a change in CenterPoint's commitment to natural gas?
Management says it remains confident in and committed to its regulated natural gas utilities in Texas, Indiana, Minnesota, and Ohio, which it considers core to long-term growth alongside its electric business. The divested Louisiana and Mississippi assets are described as a relatively small, non-core portion of the overall footprint.
04—Continue