South Jersey Industries, Inc., owner of two of the state’s four gas utilities, is being transferred to private hands as part of a $ 8.1 billion cash deal.
The Folsom-based energy company has entered into an acquisition agreement with the Infrastructure Investment Fund, a group of JP Morgan Investment Management Inc. Under the terms of the deal, IIF will acquire SJI for $ 36 per share in cash, reflecting a 46% premium on the company’s average 30-day share price over the past 30 days.
Although some of the public utilities have taken over in recent years, this proposed deal will be the first in which the company becomes private. Analysts say the deal reflects how attractive utilities are to investors – even as many clean energy advocates insist that states gradually phase out fossil fuels, especially natural gas.
“Investments are attractive because of the level of risk-adjusted returns,” said Paul Patterson, an energy analyst at Glenrock Associates, referring to the stable and reliable returns that regulated utilities receive. “These guys are going to gain some value.”
SJI owns South Jersey Gas and Elizabethtown Gas, utilities that serve more than 700,000 customers nationwide. It also owns an unregulated subsidiary of SJI Energy Enterprises, which focuses primarily on clean energy and renewable energy. In April last year, the company announced a comprehensive plan for clean energy, including a commitment by 2040 to achieve carbon-neutral work.
“As energy markets in the United States and New Jersey accelerate the transition to low-carbon and renewable energy, the SJI Board has determined that now is a good time to join forces with the IIF,” said Mike Rena, president and CEO of SJI.
According to Ren, for South Jersey Industries the deal also provides access to capital without entering the capital markets. This provides SJI with resources to modernize the gas distribution system as well as decarbonisation initiatives.
The gas is not going anywhere
It also suggests that despite pressure from clean energy advocates, gas will retain an important role in New Jersey’s energy future.
“Rumors of the death of natural gas are greatly exaggerated,” Patterson said. “The thing is, it’s a big industry.”
“After all, we are an infrastructure company. We make money by putting things in the ground, ”Rena said.
“We are fully committed to decarbonisation,” Rena added, referring to the company’s investment in renewable natural gas derived from biogas and green energy that can be blended into natural gas delivery systems. It is produced by electrolysis of water using electricity from renewable sources. “What really made it work for both of us was to align our goals,” he said.
The IIF is a approximately $ 20 billion private investment facility focused on investing in critical infrastructure such as renewable energy, water, natural gas and electricity. It already owns five utilities worldwide.
“SJI’s long experience in investing in sustainability and clean energy initiatives has resulted in a clear competitive advantage,” said Andrew Gilbert, IIF’s Director of Investment. “We believe that our expertise, resources and expertise can help SJI further strengthen its industry leadership.”
Regulatory approval required
SJI will remain in Folsam and Mike Rene, President and CEO, and the current management team will remain in place. Rena said the deal does not result in layoffs, which require the approval of the New Jersey Public Services Council and federal regulators.
The BPU declined to comment, saying it would eventually have to act on the SJI’s petition.
The New Jersey Tariff Office also declined to comment on the proposed deal, saying the office had not yet seen any documents. The office will take care of protecting the interests of payers and tangible benefits for customers of the two utilities.
“Since it appears to be a fund, not a utility that buys South Jersey Industries, we will need to consider this and determine what additional measures to protect payers are needed,” said Brian Lipman, director of Rate Counsel.
Evelyn Liebman, deputy director of AARP New Jersey, said BPU should approve the deal only if it would lead to lasting and sustainable benefits for consumers. “Policymakers need to ensure that payers do not bear the costs and risks associated with the acquisition, and may not lead to higher housing rates.”