Iberdrola’s Avangrid has agreed to acquire PNM Resources, owner of regulated utilities in New Mexico and Texas, enlarging what is already one of the largest U.S. utility groups — and one with an aggressive focus on renewable energy.
The combined company will encompass 10 regulated electricity suppliers across six states, with 4 million customers ranging from Avangrid’s stronghold in New England and New York to PNM Resources’ base in the Southwest. The enlarged company will be the third-biggest U.S. renewables operator, with about 7.4 gigawatts of capacity and a large pipeline of projects.
Spain’s Iberdrola claims to be the world’s third-largest electricity company; alongside European peers including Denmark’s Ørsted, Portugal’s EDP and Germany’s RWE, it has emerged as a potential global "clean energy major" to rival the oil giants of yesteryear.
If the acquisition closes in 2021 as planned, PNM shareholders will receive $50.30 per share, compared to the closing price of $45.75 on October 20. That gives the deal an equity value of $4.3 billion, and an enterprise value — which includes debt — of $8.3 billion.
The deal is friendly and has already been approved by PNM Resources’ board of directors. Both companies are listed on the New York Stock Exchange, and Spain’s Iberdrola S.A. will remain the largest shareholder.
Iberdrola has long been one of the leading U.S. wind power generators and currently owns nearly 2 gigawatts of wind and solar capacity in New Mexico and Texas. The acquisition of PNM Resources will give it a platform for further growth in the Southwest, including regulated generation assets that do not need to scrap for an offtake agreement and transmission lines critical for bringing power to market.
This summer, state regulators approved a plan for Public Service Company of New Mexico — one of PNM Resources’ two main utility subsidiaries — to eliminate coal power produced at the San Juan Generating Station from its mix. Instead, the coal capacity will be replaced entirely with solar and batteries, marking a dramatic pivot for the company. San Juan is currently PNM’s largest source of generation.
In a presentation on the PNM acquisition, Avangrid noted that New Mexico has the third-largest potential for both wind and solar generation of any U.S. state. Those resources remain largely untapped.
Last year PNM acquired the Western Spirit transmission project from Pattern Development, which would allow renewable power generated in New Mexico to be moved westward toward bigger markets.
Iberdrola seizes opportunities during the COVID-19 crisis
While much of the global energy industry has been hard-hit by the coronavirus pandemic, the renewables sector has largely been spared. Early in the outbreak, Iberdrola said it would buck the instinct toward retrenchment and instead planned record investments in 2020 to take advantage of new opportunities and help create jobs during the downturn.
Iberdrola does not seem to be struggling to keep up with that promise. So far this year, it has acquired clean energy projects or companies in France, Scotland, Sweden, Japan, Brazil and Australia.
Ignacio Galán, chairman of Iberdrola and Avangrid, said the PNM acquisition follows Iberdrola's strategy to pursue "friendly transactions, focused on regulated businesses and renewable energy, in countries with good credit ratings and legal and regulatory stability, offering opportunities for future growth.”
Avangrid was created in 2015 when Iberdrola’s U.S. business acquired Connecticut-based UIL Holdings, owner of United Illuminating and other utility companies. Vineyard Wind, the developer behind what is likely to be the first major U.S. offshore wind project to get built, is owned by Avangrid and Copenhagen Infrastructure Partners.
Shares of PNM Resources jumped more than 8 percent on Wednesday morning after the deal was announced, to $49.62. Avangrid shares fell 6 percent to $50.81.
Based on Wednesday's share prices, the two companies would have a combined market capitalization of just under $20 billion. That would put the combined company in the national top 20 for utility groups by market value — in the same league as players like Entergy, DTE Energy and Edison International (owner of Southern California Edison).
NextEra Energy, the industry's leader with a market cap now approaching $150 billion, reportedly made a recent takeover approach to Duke Energy, another of the country's largest utilities.