In an effort to ensure a fair proceeding in the fight between Carlyle Group and the city of Missoula over the ownership of Mountain Water, Missoula District Judge Karen Townsend has forbidden either side from speaking about the water utility's finances. The gag has left citizens in the dark about the potential consequences, good and bad, of the city's effort to acquire the water system. And in the vacuum of uncertainty, there's potential for some jitters.
So let's focus on what we do know: The city originally offered $65 million, and when Carlyle rebuffed the offer, Mayor John Engen came back with $50 million, a reminder to Carlyle that the price could be considerably less if it chose to put the city through a painful condemnation process. Carlyle then made a deal with Liberty Utilities, a subsidiary of Algonquin Power & Utilities, to sell it Mountain Water and two other systems in California.
Liberty has spilled enough information to ballpark its bid for Mountain Water. The Toronto-based company told its investors in September the acquisition price reflects a valuation of 9.6 times projected 2016 EBITDA (that's Earnings Before Interest Taxes Depreciation and Amortization, a fundamental measure of a business' profitability). In plain language, Liberty correlated the purchase price with a multiple of the expected operating income, which in Mountain Water's case was $7,331,000 in 2013. That puts Liberty's offer to buy the Missoula utility within shouting distance of $70.4 million.
Like most utilities, Mountain Water invests heavily in its system, more than $4 million last year. But the $7.3 million of income obviously covers all their improvements, and then some. No matter how you slice it, system upgrades are effectively carried on the ratepayers' backs.
Both the city and Carlyle have an arsenal of alarming hypotheticals they can brandish to make Mountain Water seem either dramatically more or less valuable, but the city's opening bid and Carlyle's subsequent agreement with Liberty give an indication where things might be headed. The city says the income stream will support a $102 million bond, so it would be a manageable transaction.
Meanwhile, Liberty told its investors that it expects to increase its profit from the acquired water businesses by 44 percent over the next five years, implying an annual earnings target in excess of $10.5 million for Mountain Water. Maybe they can conjure that kind of success without bilking their captive customers, but the aggressive profit goals should give Missoula ratepayers pause. Of all the concerns revolving around this deal, the fear that Liberty's wealth would come out of Missoulians' hide seems the most obvious.