Does The Deal Between Hawaiian Electric and NextEra Make Financial Sense?

Jun 10, 2015

Credit Akamai Solar Hawaii / Flickr

Shareholders of Hawaiian Electric today approved the $4.3 billion sale of the company to Florida-based NextEra Energy. There are still many steps remaining before the deal becomes final, including approval by Hawai‘i’s Public Utilities Commission. But as HPR’s Molly Solomon reports, at this stage investors were focused merely on whether the deal made financial sense for those who already own stock in Hawaiian Electric

Charles Fishman is a utility equity analyst for Morningstar. He’s been studying Hawaiian Electric for the past 3 and a half years. When I asked Fishman about the deal, he says he thinks about it in terms of does it make sense for the shareholders and does it make sense for the customers?

Connie Lau, president and CEO of Hawaiian Electric Industries announcing plans to merge with NextEra Energy in December, 2014.
Credit Molly Solomon

Fishman says when you look at the numbers, it’s hard to find a reason why shareholders would vote against this deal. In addition to anticipating a higher share price, he says a merger with NextEra would also likely boot the company’s dividend -- a key consideration for investors. “People buy utilities for dividends,” said Fishman. “And you’re dealing with a set of [HEI] shareholders that have not had a dividends increase for 17 years. That’s painful.”

While Hawaiian Electric focuses mainly on integrating technologies like solar into the grid, Fishman believes a major player like NextEra Energy will move in the direction of building infrastructure. “Now you’re bringing in people who have a lot of experience building windfarms, building solar,” said Fishman. “I think that’s going to be a benefit for Hawai‘i and the customers long-term.”

William Nelson, an analyst with Bloomberg New Energy Finance agrees. He thinks a utility in Hawai‘i is an attractive acquisition for the Florida company. “They regard Hawai‘i as this laboratory for renewable penetration. It’s really far ahead of the curve,” said Nelson. “They’re weaning off oil, getting ready to start consuming liquefied natural gas and solar has basically exploded onto the scene.”

Still, some banks and brokerages are skeptical about whether the merger will ultimately go through. In a recent note to investors, Barclays recommended staying away from Hawaiian Electric and buying NextEra instead.

The state’s Public Utilities Commission still has to approve the deal. Following today’s shareholder vote, the next date to watch is July 20, the deadline for all interveners to submit testimony to the PUC.