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Business North - The Daily Briefing - Business Newspaper Online
ALLETE to acquire water management company
ALLETE, Inc. has signed a definitive agreement to purchase U.S. Water Services, Inc., an integrated industrial water management company, the Duluth-based corporation announced Tuesday.
ALLETE will initially purchase 87 percent of U.S. Water for $168 million. Current employees and management of U.S. Water will continue to own the remaining 13 percent. ALLETE will purchase the remaining 13 percent interest in the future for an amount based on U.S. Water's future earnings.
Headquartered in St. Michael, Minn., U.S. Water has a national footprint and serves more than 3,600 industrial customers. U.S. Water provides integrated water management for industry, combining chemical, equipment, engineering and service for customized solutions to reduce water and energy usage and improve efficiency.
U.S. Water helps customers achieve efficient and sustainable use of their energy systems, is a leading provider to the biofuels industry, and has a growing presence in the power generation and midstream oil and gas industries, Allete said in the announcement.
"Water and energy are intricately linked, and attention to that nexus is increasing," said Al Hodnik, chairman, president and CEO of ALLETE. "Just as with energy, regulation and social expectations will increasingly drive water conservation, especially as water scarcity becomes a growing challenge. We believe the demand for sustainable water management solutions will increase over time as large users seek ways to enhance efficiency and improve their bottom line."
The acquisition of U.S. Water is consistent with ALLETE's stated strategy of investing in energy infrastructure and related services to complement its core regulated utility, balance exposure to business cycles and changing demand, and provide long-term earnings growth, Hodnik said. With the acquisition, ALLETE will now focus its infrastructure and related service efforts on growing ALLETE Clean Energy and U.S. Water, he said.
"U.S. Water is an attractive size for ALLETE, has demonstrated consistent growth, and will provide supportive cash flows with minimal capital requirements," Hodnik said. "It's important to us that U.S. Water's integrated approach to finding customized solutions for its customers has resulted in exceptional customer retention that exceeds 90 percent and produces consistent recurring revenues."
"We are excited about joining the ALLETE team, and believe U.S. Water will be a great fit," said Allan Bly, U.S. Water Founder and CEO. "This combination will provide a platform for long-term success and growth for our company and employees."
U.S. Water's management team is expected to remain in place, as will the company's St. Michael, Minn. headquarters.
U.S. Water generated revenue of approximately $120 million during 2014, and ALLETE projects future revenue growth of 10 percent to 15 percent annually. ALLETE expects the acquisition to provide long-term earnings growth and diversity, and have no material impact on 2015 earnings per share. ALLETE's previously stated 2015 earnings guidance is unchanged, and excludes transaction costs. The transaction will be financed with a combination of cash, equity raised from existing programs and temporary short-term debt.
"We are focused on providing sustainable solutions to our customers," said Hodnik, "and our EnergyForward and Power of One initiatives at Minnesota Power, renewable energy investments at ALLETE Clean Energy, and investment in U.S. Water are great examples."
ALLETE said it has a long-term objective of achieving minimum average earnings growth of 5 percent annually and maintaining a competitive dividend payout.
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