Item 1.01. Entry into a Material Definitive Agreement.
On February 3, 2020, Vectren Utility Services, Inc., an Indiana corporation (the “Seller”) and a wholly-owned subsidiary of CenterPoint Energy, Inc. (the “Company”), entered into a Securities Purchase Agreement (the “Purchase Agreement”) by and among the Company, PowerTeam Services, LLC, a Delaware limited liability company (the “Buyer”), and, solely for purposes of Section 10.17 of the Purchase Agreement, Vectren Corporation, an Indiana Corporation, pursuant to which the Company has agreed to sell its infrastructure services reportable segment (the “Business”) to Buyer.
Subject to the terms and conditions of the Purchase Agreement, Buyer has agreed to purchase all of the outstanding equity interests of Vectren Infrastructure Services Corporation, an Indiana corporation (“VISCO”), and a subsidiary of the Company (the “Transaction”). The purchase price for the Transaction is approximately $850 million, subject to customary adjustments set forth in the Purchase Agreement, including adjustments based on VISCO’s net working capital at closing, indebtedness, cash and cash equivalents and transaction expenses (as so adjusted, the “Purchase Price”). The Company estimates that its net after-tax proceeds from the sale of $668 million to $683 million, inclusive of the working capital adjustment, will be used to repay a portion of its outstanding debt in the second quarter of 2020.
The completion of the Transaction is subject to customary closing conditions, including, among others (i) the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and (ii) customary conditions regarding the accuracy of the representations and warranties and compliance by the parties in all material respects with their respective obligations under the Purchase Agreement. The Transaction is not subject to a financing condition. The Transaction is expected to close in the second quarter of 2020, subject to satisfaction of the foregoing conditions, among other things.
The Purchase Agreement contains customary representations, warranties and covenants related to the Business and the Transaction. Between the date of the Purchase Agreement and the completion of the Transaction, the Company has agreed to conduct the Business in the ordinary course of business consistent with past practices and has agreed to certain other operating covenants with respect to the Business as set forth more fully in the Purchase Agreement. The Purchase Agreement includes customary termination provisions, including if the closing of the Transaction has not occurred on or before June 3, 2020. Both the Company and Buyer have agreed to indemnify the other party for losses arising from certain breaches of covenants contained in the Purchase Agreement and other liabilities, subject to certain limitations.
The foregoing description of the Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the complete text of the Purchase Agreement. A copy of the Purchase Agreement is filed as Exhibit 2.1 to this Current Report on Form 8-K and is incorporated herein by reference. The representations, warranties and covenants set forth in the Purchase Agreement have been made only for the purposes of the Purchase Agreement and solely for the benefit of the parties thereto and may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties to the Purchase Agreement instead of establishing these matters as facts. In addition, such representations and warranties were made only as of the dates specified in the Purchase Agreement and information regarding the subject matter thereof may change after the date of the Purchase Agreement. Accordingly, the Purchase Agreement is included with this filing only to provide investors with information regarding its terms and not to provide investors with any other factual information regarding VISCO or the Business, or the Company or its business, as of the date of the Purchase Agreement or as of any other date. Investors and security holders should not rely on such representations and warranties as characterizations of the actual state of facts or circumstances, since they were made only as of a specific date, were negotiated by the parties and are modified in important part by the underlying disclosure schedules. In addition, certain representations and warranties may be subject to a contractual standard of materiality different from what might be viewed as material to shareholders.
Item 7.01. Regulation FD Disclosure.
On February 3, 2020, the Company issued a press release announcing the Transaction. A copy of this press release is furnished as Exhibit 99.1 hereto and is incorporated herein by reference.
During the preparation of its financial statements for the year ended December 31, 2019, the Company is performing an interim goodwill impairment valuation of its infrastructure services reportable segment. Considering the economics of the Transaction as an indication of the fair value of the Business as of December 31, 2019, the Company preliminarily anticipates recording an after-tax impairment in this reportable segment of approximately $85 million in 2019. The Company will continue to perform its accounting and valuation processes required in the preparation of its financial statements to
include the final allocation of its initial purchase price from its acquisition of the Business on February 1, 2019 to each of the businesses acquired in that transaction. The actual amount of the after-tax impairment recorded in 2019 may be materially different from the preliminary amounts.
The sale of the Business is expected to reduce the Company’s GAAP earnings by approximately $0.10–$0.11 per diluted share of the Company’s common stock on an annualized basis. However, despite the expected annual earnings impact, the sale is a key achievement in the Company’s ongoing strategic focus to strengthen its balance sheet and to improve its business risk profile and earnings quality through increased relative contribution of its core utility businesses.
The information furnished in Item 7.01 and Exhibit 99.1 are not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is not subject to the liabilities of that section and is not deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act.
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Cautionary Statements Regarding Forward-Looking Statements
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This Current Report may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact included in this Current Report are forward-looking statements made in good faith by us and are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. When used in this Current Report, the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “objective,” “plan,” “potential,” “predict,” “projection,” “should,” “target,” “will” or other similar words are intended to identify forward-looking statements. These forward-looking statements are based upon assumptions of management which are believed to be reasonable at the time made and are subject to significant risks and uncertainties. Actual events and results may differ materially from those expressed or implied by these forward-looking statements. Forward-looking statements include, but are not limited to, statements relating to benefits of the sale, the timing of the closing, the accounting treatment of the Transaction by the Company, including the anticipated impairment, and forecasted earnings reduction. Each forward-looking statement contained in this Current Report speaks only as of the date of this report. Important factors that could cause actual results to differ materially from those indicated by the provided forward-looking information include risks and uncertainties relating to: (1) the timing of the expiration or termination of the Hart-Scott-Rodino waiting period or any other commitment to not close before a certain date under a timing agreement with the United States Federal Trade Commission or the Antitrust Division of the United States Department of Justice, (2) the occurrence of any event, change or other circumstances that could give rise to the termination of the Transaction or could otherwise cause the failure of the Transaction to close, (3) the risk that a condition to the closing of the Transaction may not be satisfied, (4) the outcome of any legal proceedings, regulatory proceedings or enforcement matters that may be instituted relating to the Transaction, (5) the timing to consummate the Transaction, (6) disruption from the Transaction making it more difficult to maintain relationships with customers, employees, regulators or suppliers, (7) the diversion of management time and attention on the Transaction and (8) other factors discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 and Quarterly Report on Form 10-Q for the quarters ended March 31, 2019, June 30, 2019 and September 30, 2019, and other reports the Company or its subsidiaries may file from time to time with the Securities and Exchange Commission.
Item 9.01. Financial Statements and Exhibits.
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EXHIBIT
NUMBER
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EXHIBIT DESCRIPTION
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2.1*
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99.1
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104
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Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document
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* Schedules and similar attachments have been omitted pursuant to Item 601(b)(2) of Regulation S-K.
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