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The issuance of $400 million in TXNM Energy Inc. stock to an affiliate of Blackstone Inc. last year was an “integral part” of a proposed sale of PNM’s parent company to the private equity firm, Attorney General Raúl Torrez said in a filing Monday, contending that the stock deal is “void” because the companies did not obtain regulatory approval. 

“It is uncontested that the sale of this stock was not pre-approved by the Commission,” the New Mexico Department of Justice said in its filing, arguing that all mergers and acquisitions need prior approval from the three-member Public Regulation Commission. 

But TXNM and New York-based Blackstone disagree.

In a competing motion, the parent company of New Mexico’s largest utility argued that state law does not prohibit the issuance and sale of shares to a party so long as the party does not acquire a controlling interest in the utility. In this case, the stock transaction, under which TXNM issued and sold 8 million shares to Blackstone on top of the 100 million in shares already on the market, was made to help TXNM finance projects for ratepayers. Blackstone paid $400 million for the shares.

The transaction gave Blackstone — through an affiliate company — a 7.5% stake in TXNM for $50 per share. That is cheaper than the $61.25 per-share cost of the proposed $11.5 billion acquisition of TXNM by Blackstone, announced last year. The stock transaction restricted Blackstone’s voting rights, prohibiting the company from making board of directors appointments or removing directors. 

Blackstone and TXNM argued that the stock transaction was far from secret and was not an issue until Prosperity Works, an Albuquerque nonprofit, contested the transaction in a February filing. The PRC, whose members were appointed by Gov. Michelle Lujan Grisham, agreed to pause the main merger application as they review the stock transaction at issue. A public hearing is scheduled April 30 at 9 a.m.

“National and New Mexico news outlets shared the report across the nation,” the TXNM and Blackstone filing said, arguing that the purpose of the sale was to finance utility infrastructure projects — regardless of whether the merger went through. 

To declare the transaction void would “replace $400 million of TXNM equity with $400 million of TXNM debt, significantly impact TXNM’s financial condition, create uncertainty surrounding future investment, and potentially increase the cost of debt to customers,” TXNM and Blackstone said. 

The companies offered up what they called “pragmatic” alternatives to the commission: retroactively approve the financing transaction or allow the two parties to restructure it.

“Investors need predictability and certainty to avoid a situation where, like here, Movants seek to unwind an investment nearly a year after the fact in a manner that would have severe consequences for TXNM and its utilities’ customers,” the companies said in the filing. 

But the NMDOJ maintained that the $400 million stock issuance and sale were “an integral part of the merger and are described on multiple occasions in the merger agreement.” Because the New Mexico Public Utility Act requires commissioners to approve mergers and acquisitions, the financing transaction violated that law, according to the attorney general’s interpretation of the law.

“Both the merger agreement and the PIPE transaction were to be signed and announced simultaneously,” the attorney general’s filing said. “Blackstone and TXNM negotiated a purchase price for the stock simultaneously with negotiations for the purchase price of the company itself.” 

The filings come as one other utility, New Mexico Gas Co., is awaiting a final verdict on its sale to the Louisiana-based private equity firm Bernhard Capital Partners, which is also being questioned by Torrez. 

Justin Horwath covers energy and technology for the Journal. He can be reached at jhorwath@abqjournal.com.