Sustainable Finance Newsletter - A deal-within-a-deal turns heads
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) willmake the fund firma 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 agreementthat GIP struck on May 6 has caught the attention of consumer groups. GIP joined another investor to takeMinnesota-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 10filing to FERC, attorneys representing GIP said they would submit a separate application "at some pointin 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 thoseof 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
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