Southern Slims Down After Bets on Big Projects Fail to Pay Off

(Bloomberg) -- Southern Co., which has spent billions of dollars to expand its U.S. utility empire, is now retrenching.

The company said Monday it was selling nearly all the assets it owns in Florida to NextEra Energy Inc. for $5.1 billion as it pushes to cut debt from its acquisitions and complete a long-delayed nuclear project. The sale, which includes Gulf Power and Florida City Gas, will allow Southern to trim $3 billion from amount it needs to raise over the next five years.

Southern isn’t done. Chief Executive Officer Tom Fanning wouldn’t rule out selling more assets on Monday during a call with analysts. The company expects to raise more than $1 billion by selling a stake of its solar portfolio. And it’s seeking $1 billion in third-party tax equity financing for its wind projects, Fanning said.

“They’ve got capital needs,” said Paul Patterson, a utility analyst for Glenrock Associates. “They have limited cash flow and they have a large amount of investments they want to make.”

The sale of Florida City Gas and Gulf Power, which Southern has owned for more than 90 years, comes at a critical time.

The company is forging ahead with plans to build the first U.S. nuclear power plant in decades, despite construction delays and a total estimated price tag that’s soared to more than $25 billion. It’s also recovering from a $6.2 billion -- $4.1 billion after tax --writedown from a clean-coal power plant in Mississippi it scrapped last year. And the U.S. federal tax overhaul has weakened cash flow at Southern’s regulated utilities, leaving the company needing to raise money.

The situation is a far cry from where Southern stood a few years ago. In 2015, the company announced a nearly $8 billion acquisition of gas-utility owner AGL Resources, which at the time made Southern the second-largest U.S. utility by customers. The following year, it spent $1.5 billion for a 50 percent stake in a Kinder Morgan Inc. pipeline system. Southern was also one of the most active buyers of solar and wind farms.

Now, Southern is selling off pieces of the AGL business it acquired, including Florida City Gas. Last year, it sold two natural-gas distributors in New Jersey and Maryland for about $1.4 billion.

“Southern really would have preferred to hang onto these assets,” said Michael Weinstein, an analyst at Credit Suisse Group AG.

Including debt, the NextEra deal totals $6.48 billion, Southern said in a statement. The Florida City Gas deal may be completed in the third quarter, while the Gulf Power sale may be completed in the first half of 2019. The acquisition also includes companies holding Southern Power’s interests in the Oleander and Stanton plants. Southern is maintaining its interest in liquefied natural gas assets in Florida.

“Southern is more in a harvesting mode than an acquisition mode at this point,” said Kit Konolige, a utility analyst for Bloomberg Intelligence.

--With assistance from Christopher Martin.

To contact the reporter on this story: Mark Chediak in San Francisco at mchediak@bloomberg.net

To contact the editors responsible for this story: Lynn Doan at ldoan6@bloomberg.net, Joe Ryan, Margot Habiby

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