Sustainable Finance Newsletter - A deal-within-a-deal turns heads

ALLETE

22/05/2024 18:13

By Ross Kerber
       May 22 (Reuters) - In past newsletters I cited a review
by the top U.S. energy regulator about whether asset managers
have gotten too big, but that review is almost philosophical in
the questions it is raising about the power of BlackRock and
other big fund firms.

But now a different matter before the U.S. Federal Energy
Regulatory Commission (FERC) has drawn some practical questions
about a deal BlackRock put together in January.
    
You can read about these objections in my main story below. Also
please connect with me on LinkedIn. If you have a news tip,
potential content, or general thoughts you can email me at
ross.kerber@thomsonreuters.com

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A deal-within-a-deal turns heads
BlackRock says its planned $12.5 billion deal to buy Global
Infrastructure Partners (GIP) will make the fund firm a major
player in energy development. But it has also fueled concerns
about BlackRock's reach given its role as the world's biggest
asset manager running some $10.5 trillion at the end of March.
    
BlackRock says the deal won't close until the third quarter.
Meanwhile an agreement that GIP struck on May 6 has caught the
attention of consumer groups. GIP joined another investor to
take Minnesota-based energy company ALLETE  ALE.N  private at a
$6.2 billion valuation to help it raise money for renewables.

    Advocacy group Public Citizen
     has said in filings to FERC that the deal for ALLETE  puts
BlackRock in a position to exercise active control over power
market assets, giving it a say on matters like rate-setting, and
a change from its traditional role as a passive investor.
  
        
  
For instance, the group noted how BlackRock controls around 9%
of both Cleveland Cliffs  CLF.N  and U.S. Steel.  X.N  Both
operate mining facilities that together represent 70% of
industrial demand for ALLETE's Minnesota Power division, and
BlackRock itself controls some 13% of ALLETE's voting shares. 
    
    That ownership pattern raises potential conflicts that
deserve scrutiny from FERC, said Tyson Slocum, a Public Citizen
director in an interview. An example, he said, is whether
BlackRock would be able to vote on a shareholder resolution
calling on either steelmaker to 
    decarbonize production
    , which might reduce ALLETE's power sales.
  

    While Slocum said it was not clear FERC should block either
deal, the body should review the authorizations it 
    previously granted BlackRock
     to own major shares of utilities as a passive investor.
  
    
"What's coming to a head here is whether BlackRock can exist as
the world's largest investment manager and as an owner and
controller of physical infrastructure assets," Slocum said. "I
don't see how BlackRock can navigate both of those
simultaneously."
    
    GIP and ALLETE declined to comment. FERC representatives did
not respond to questions. Cleveland Cliffs and U.S. Steel did
not immediately comment. 
  
    
    In a May 10 filing to FERC, attorneys representing GIP said
they would submit a separate application "at some point in the
future" where questions about the competitive impact of the
ALLETE deal belong. They asked FERC to authorize the GIP deal
with BlackRock by June 10, as previously requested.    
    
BlackRock declined to comment on its pending acquisition.
BlackRock says it has policies to "mitigate perceived or
potential conflicts" such as  maintaining proxy voting
guidelines and where needed, hiring an independent voting
service.     
    
    At its annual shareholder meeting on March 15 CEO Larry Fink
said the GIP deal "will propel our leadership in the
fast-growing market for hard asset infrastructure." 
  
        
Company News - Finance Edition 
New news on "debanking" - A conservative shareholder pulled a
resolution from JPMorgan's  JPM.N  annual meeting, with his
representative saying it reflected changes the Wall Street bank
has made to take more account of diverse viewpoints. 

    As its next CEO Vanguard brought in Salim Ramji, a former
executive of its archrival BlackRock. BLK.N  Look for Ramji to
try to grow the Pennsylvania firm's assets, now some $9
trillion, to become more than those of BlackRock, which ran
$10.5 trillion at the end of March.
    
A 35-year-old Bank of America  BAC.N  investment banker who died
from a blood clot wanted to leave because he was working more
than 100 hours a week, according to an executive recruiter who
spoke with him about seeking a new job.
    
On my radar  
I've said before that Exxon's  XOM.N  May 29 annual meeting
looks like  a test of how much support small investors can
expect from top asset managers. On Tuesday a group of state
financial officers  called for big fund firms to vote against
Exxon directors over the energy giant's suit against activist
investors. 

Speaking of oil company meetings, May 29 is also the day of
Chevron's  CVX.N  AGM. Listen to see if it provides an update on
its arbitration with Exxon over its proposed Hess acquisition.
     
Houston-based waste management firm WM  WM.N  is exploring a $3
billion-ish sale of its renewable natural gas business that
would include rights to develop operations for producing energy
from biological waste. 

 (Reporting by Ross Kerber in Boston; Editing by David Gregorio)
 ((ross.kerber@thomsonreuters.com; (617) 412 0093;))