Iberdrola’s Avangrid Expands in U.S. With $4.3 Billion Deal
Avangrid Inc., the U.S. arm of Iberdrola SA, agreed to buy PNM Resources Inc. of New Mexico for $4.3 billion, strengthening the Spanish utility giant’s position as a global giant in an industry that’s being transformed.
The deal to buy the power provider for $50.30 per share -- a 10% premium -- values PNM at $8.3 billion including debt. It’s Iberdrola’s eighth acquisition since the start of the coronavirus pandemic, comings weeks after it bought Infigen Energy of Australia.
The deal will give Iberdrola a bigger presence in the U.S. Southwest, expanding beyond Avangrid’s territory in the Northeast. It breaks a months-long dry spell for utility deals in the U.S. And it continues a strategy by Chief Executive Officer Ignacio Galan to grow beyond the Iberian peninsula and build a business with worldwide reach in power grids and renewables plants.
“Iberdrola has definitely been very interested in U.S. plain-vanilla utilities,” said Kit Konolige, utilities analyst for Bloomberg Intelligence. “This fits the Iberdrola playbook.”
Avangrid shares plunged as much as 9.5% in New York, and PNM rose 9.3%.
The proposed takeover is the first major U.S. electric utility merger announced since a JPMorgan Chase & Co. investment fund agreed 16 months ago to buy Texas power company El Paso Electric Co. for $2.78 billion in cash. After all but drying up amid the pandemic, deal making now appears to be picking up.
Florida-based NextEra Energy Inc., the world’s largest utility owner by market value, recently made an unsuccessful bid to take over power giant Duke Energy Corp. Exelon Corp. has considered selling its non-utility assets. And DTE Energy Co., which operates in the Midwestern U.S., is considering unloading its natural gas pipelines and other non-utility operations, according to people familiar with the matter.
Avangrid already owns wind plants in New Mexico and Texas, where PNM operates. The deal would will give Iberdrola 10 regulated electricity companies in six states -- New York, Connecticut, Maine, Massachusetts, New Mexico and Texas, according to the company.
The deal also reflects increasing focus on the transition to cleaner energy in the U.S., driven by economics favoring wind and solar farms over coal -- despite President Donald Trump’s effort to water down environmental rules.
Galan was among the first in the utility business to wind down coal plants and build renewables, taking advantage of a plunge in the cost of wind turbines and government incentives to slash emissions. That’s touched off a flurry of deals to reshape the electricity industry, drawing oil majors including Royal Dutch Shell Plc and Total SA to grab a part of a business once dominated by utilities.
“We have been pioneers in the energy revolution for 20 years, when everybody thought electricity couldn’t be produced with clean sources,” Galan told analysts during a results call on Wednesday. “We started our energy transition 20 years ago.”
Overall, this year’s buying spree has helped boost Iberdrola’s pipeline of future power projects to more than 70 gigawatts of capacity. That’s 40% more green energy than BP Plc has said it plans to have ready to go in the next decade, the most ambitious plan among European oil majors.
Galan is seeking to bring Iberdrola into new markets in the most developed economies, firming up routes to build more green power projects in the coming years. He has seen the coronavirus-induced economic downturn as an opportunity to boost spending.
PNM provides power to about 790,000 homes and businesses in Texas and New Mexico and has 2.8 gigawatts of generation capacity, according to information on its website. Like many U.S. utilities, it’s been pushing to retire coal plants and adding renewable energy, moves in step with an effort Iberdrola started pursuing almost two decades ago.
Iberdrola posted positive financial results Wednesday with increases in net profit and earnings in the three months to September. The company saw a 52% rise in renewable investment in the first nine months of 2020 and has added 4.6 gigawatts of power capacity in the last 12 months.
The $50.30 a share deal is a 10% premium to Tuesday’s closing price but also a 10% discount to the pre-Covid high earlier this year.
PNM has received regulatory approval to more than triple its renewable-power capacity to 2 gigawatts by the end of 2022. It has set a goal to be 100% emissions free by 2040.
The deal requires approval from a PNM shareholders meeting.
©2020 Bloomberg L.P.