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US private capital group Global Infrastructure Partners and Canada’s largest pension fund are nearing a deal to buy Allete, a regulated utility with sizeable clean energy operations, for about $5bn, said two people familiar with the matter.
Based in Duluth, Minnesota, Allete is known in the utilities sector for powering mines of taconite which is used to create iron ore used by the steel industry. The utility also owns a large renewable energy operation that is expected to produce more than 1.5 gigawatts of wind energy.
GIP is one of the world’s largest infrastructure investors, with more than $100bn in assets under management. Earlier this year, it agreed to sell itself to BlackRock for $12.5bn as the world’s largest asset manager prioritises growth in private markets.
It is partnering with CPP Investments, a Canadian pension fund with $590bn in assets that has vast infrastructure and real assets holdings. CPP has invested in utilities and power producers including Calpine in the US and Octopus Energy in the UK.
GIP and CPP declined to comment, while Allete did not immediately respond to messages seeking comment.
Infrastructure groups have invested heavily in utilities, with some of their investments benefiting from a shortage of power production capacity as data centres and digital infrastructure tax energy grids.
Private capital groups have also planned large investments into utilities as part of efforts to transition power companies to lower-carbon energy production. Last year, Brookfield unsuccessfully attempted to take private Australia’s largest integrated utility, Origin Energy, as part of a strategy to invest $20bn in the utility to replace its coal power generation with renewable energy sources.
Allete is planning to invest $4.3bn in coming years to build additional renewable power sources and meet state goals for carbon-free power generation.
Bankers led an extended process to find a buyer for Allete, with some infrastructure groups deterred by uncertainty over the returns they could earn from a regulated utility, people familiar with the situation said.
Others were turned off by the group’s concentrated customer base of mining operations and paper pulp mills, industries that face uncertain futures because of technological change. Allete’s shares have fallen about a quarter over the past five years and closed at $60.84 on Thursday, giving it a market capitalisation of $3.5bn.
Deals in the utility sector, which is highly regulated, have slowed in recent years. Earlier this year, Avangrid and New Mexico electric utility PNM Resources called off a proposed $8bn merger after a state regulator blocked the deal over concerns it would hurt customers.
