An Example of the Two Step in M&A
By Branko Terzic
The Minnesota Public Utilities Commission (MPUC) voted unanimously to approve the acquisition of Allete Inc. by Canada Pension Plan Investment Board (CPP Investments) and Global Infrastructure Partners (GIP). With headquarters in Duluth, Minnesota. Allete Inc. owns electric utilities, Minnesota Power and Superior Light & Power.
Per the MPUC October 3, 2025, order, Global Infrastructure Partners, a subsidiary of the massive private equity firm BlackRock will own 60 percent of the utility. BlackRock is the world’s largest asset manager. The Canada Pension Plan Investment Board is purchasing a minority stake.
The Minnesota Public Utility Commission order requires, as conditions for approval, that the Minnesota Power provide:
- $50 million in rate credits to customers
- $10 million for energy efficiency programs
- $50 million funding for new clean energy technologies
- $3.5 million to forgive customers’ unpaid bills.
- A one-year rate freeze
- ROE (Return on Equity) reduction from 9.78% to 9.65% post close, immediately lowering costs for customers, and a future ROE cap of 9.78% through December 31, 2030
The required conditions add up to about $200 million in post-merger “benefits” to consumers. These benefits, no doubt. helped the five MPUC commissioners find that the acquisition was in the “public interest” as required by Minesota statues.
Opponents to the acquisition had argued that the “private equity model” stresses short-term profits over long-term interests. I don’t know if this is true or not. It may not matter, as I doubt any PUC would find acceptable ROE arguments that the particular shareholder needed higher short-term profits than those associated with the equity risk in the electric utility investment. ROE testimony usually hinges on the risk inherent in the business and not on the specific requirements of a type of investor.
These regulated acquisitions usually entail a two-step “benefits” exercise.
My working assumption is that any acquisition is premised on the principle that the acquirer can operate the utility more efficiently than the incumbent. In other words, the acquirer can create greater value in the future than the current owners.
The first step is a negotiation with the seller where some of the future value is shared with the seller in the form of a premium over the current market price. For businesses in competitive industries that’s the end of the negotiating.
For regulated business, such as public utilities, a second step is a negotiation with the regulator over what “benefits” supporting the public interest could be extracted from the acquirer. In this case the MPUC apparently accepted the $200 million of conditions as adequate.
There have been cases where the regulator has demanded a share of the value creation greater than the acquirer could or would accept. This is because “value” creation benefits from synergy and other future management actions rank from highly certain to speculative in attainment. Demands for “benefits” to consumers which were too high have had the effect of making the deal uneconomic.
The Honorable Branko Terzic is a former Commissioner on the U.S. Federal Energy Regulatory Commission and State of Wisconsin Public Service Commission, in addition to energy industry experience was a US Army Reserve Foreign Area Officer ( FAO) for Eastern Europe (1979-1990). He hold a BS Engineering and honorary Doctor of Sciences in Engineering (h.c.) both from the University of Wisconsin- Milwaukee.
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