Avangrid seeks buyout of New Mexico's PNM Resources with cash offer

Houston — Iberdrola's US subsidiary Avangrid plans to buy PNM Resources for $4.3 billion in cash, the company told analysts in a Q3 earnings call on Oct. 21.

The deal will have an enterprise value of $8.3 billion, and is expected to close in the fourth quarter of 2021. The enterprise value comprises a net debt plus adjustments totaling approximately $4 billion.

Avangrid said Iberdrola, its Spanish utility parent, is its largest shareholder, and "will provide a funding commitment letter up to the full amount of the transaction." Iberdrola is "expected to retain an 81.5% ownership post-transaction," Avangrid said.

PNM Resources has regulated utilities in New Mexico and Texas that serve approximately 2 million customers combined. Avangrid said the merger will create a US utility with 10 regulated electricity companies in six states" as well as "the third largest renewable energy operator in the US with a total presence in 24 states."

Calling the deal a "strategic transaction," Avangrid CEO Dennis Ariola told analysts it will be a 100% cash offering at $50.30/share, and is expected to take until Q4 2021 to close.

According to the Oct. 21 presentation, Avangrid and PNM will have a combined total of 10,939 MW of generating capacity, of which 7,615 MW will be wind generation. Natural gas and "other" generation is expected to reach 2,050 MW. The company said that combined natural gas generation will be 9% of the combined portfolio.

The company said that "key terms" of the transaction are that each company has "strong commitments to ESG, including carbon reduction goals, renewables generation portfolio, "and PNM's pathway to coal-free generation."

Avangrid has no coal-fired generation. PNM's coal assets total 762 MW, consisting of the 497 MW San Juan Generation Station, the 200 MW Four Corners facility and 65 MW of San Juan's generation that is not in rate base.

PNM has already planned a shutdown of 562 MW of coal generation in 2022, Avangrid CEO Dennis Ariola noted, with the remaining 200 MW expected to be closed "as soon as practical," he said.

Avangrid said that the growth of its generating network could increase its regulated earnings by as much as 80%.

Avangrid CFO Doug Stuver said the company expects an earnings per share accretion in the first full year of consolidation by as much as 3%.

The company also said the PNM Resources transaction will not need regulatory approval in New York, Maine, Connecticut or Massachusetts, but will need Federal Energy Regulatory Commission approval as well as approval from the Committee on Foreign Investment in the US, or CFIUS.

It estimated the time it will take to file and receive approval from the New Mexico Public Regulation Commission between eight and 14 months, and from the Public Utility Commission of Texas between six and eight months.

Offshore Wind

Avangrid's CEO Ariola told analysts that he "feels good about where we are" in terms of the offshore wind efforts being pursued by its offshore division, Vineyard Wind.

Vineyard Wind, he noted, expects its final Bureau of Ocean Energy Management Environmental Impact Statement in November and a Record of Decision and Approval in December.

The company told analysts that the 804-MW Park City Wind project slated to be built in a Vineyard Wind federal lease area off the coast of Massachusetts has had contracts approved by Connecticut's Public Utilities Regulatory Authority.

He also noted that Liberty Wind, which is overseeing Vineyard Wind's 1,200 MW offshore New York project, submitted in October $1 billion in bids in the New York offshore wind RFP.

Additionally, the company said geo-technical and geophysical surveys of its Kitty Hawk offshore project have been completed, and the company has opened a Virginia field office to support the project's development.