On Wednesday, U.S. utility Avangrid, the publicly listed sustainable energy company that is 81.5 percent owned by Spanish power multinational Iberdrola S.A., announced that the boards of both companies have approved Avangrid’s $50.30 all-cash offer of to acquire listed New Mexico-based energy holding company PNM Resources.
Avangrid’s offer price puts an enterprise value of $8.3 billion on the transaction, representing a 10 percent premium to PNM’s share price as of Tuesday October 20, and 19.3 percent premium to its 30-day volume weighted average price.
Avangrid’s majority shareholder, Iberdrola S.A., has provided a funding commitment letter for the entire equity proceeds of the transaction.
A mega-merger for renewables
The deal will create one of the largest clean energy companies in the United States, a top-20 U.S. utility by equity market capitalization and one of the largest by rate base, spanning ten regulated utilities in six states, as well as the country’s third-largest renewables company, operating in 24 states.
Avangrid itself has $35 billion in assets and operates in 24 U.S. states. Headquartered in Orange, Connecticut, the company has two primary lines of business: Avangrid Networks, which owns eight electric and natural gas utilities serving more than 3 million customers in New York and New England, and Avangrid Renewables. The latter owns 1,900 MW of renewable energy and a pipeline of 1,400 MW of renewables assets in New Mexico and Texas.
PNM Resources operates two regulated utilities, PNM and TNMP, through which it operates some 2,811 MW of generation capacity, providing electricity to close to 800,000 homes and businesses in Texas and New Mexico.
The combined entity is expected to improve the credit profile of PNM Resources and provide the company with greater financial flexibility and lower cost of capital, while providing Avangrid with a platform for renewables growth in the Southwestern United States, where the state of New Mexico is accelerating its clean energy transition. The state currently ranks third in U.S. wind capacity potential and U.S. energy potential from solar.
In a statement on the transaction, Avangrid chairman Ignacio Galá, who also serves as chairman of Iberdrola Group, said, “This transaction is a consequence of the Iberdrola Group’s disciplined strategy followed over more than 20 years. This is a friendly transaction, focused on regulated businesses and renewables in highly rated states with legal and regulatory stability and predictability offering future growth opportunities.
Avangrid CEO Dennis V. Arriola will continue as CEO of the combined company. In a statement, he said, “This merger between Avangrid and PNM Resources is a strategic fit and helps us further our growth in both clean energy distribution and transmission, as well as helping to expand our growing leadership position in renewables. Our two companies also share the same values as we both are passionate about our customers, employees and the communities we serve. In addition, both Avangrid and PNM Resources are leaders in environmental, social and governance issues that impact our stakeholders.”
Pat Vincent-Collawn, chairman, president and CEO of PNM Resources states, “We are excited to be part of this transaction that provides so many benefits to our customers, communities, employees and shareholders. Our combined companies provide greater opportunities to invest in the infrastructure and new technologies that will help us navigate our transition to clean energy while maintaining our commitments to our local teams and communities.”
The transaction is expected to be EPS accretive to the combined company in the first full year after closing. As a result of PNM’s earnings from regulated distribution and transmission assets, it is expected that Avangrid’s regulated earnings contribution post-transaction will exceed 80 percent, supporting Avangrid’s fast growing renewables business over the next decade.
Subject to CFIUS review
The agreement is subject to approval by PNM Resources shareholders, and will require approval from a number of state and federal regulators, including the New Mexico Public Regulation Commission, Public Utility Commission of Texas, Federal Energy Regulatory Commission, Hart Scott Rodino Clearance, Committee on Foreign Investment in the United States (CFIUS), Federal Communications Commission and the Nuclear Regulatory Commission. Regulatory approvals are expected to be completed in approximately 12 months.