AVANGRID (AGR) Scraps $4.3B Merge Deal, Focuses on Renewables
AVANGRID, Inc. AGR announced that it has terminated its acquisition of PNM Resources PNM because it could not receive all the necessary regulatory approvals. Under the proposal, Avangrid would have acquired PNM Resources and its two utilities — Public Service Co. of New Mexico and Texas New Mexico Power.
The all-cash deal of approximately $4.3 billion would have given Iberdrola and Avangrid access to a state where more solar and wind energy could be produced and exported to bigger markets.
Reasons for Termination
The merger agreement, announced in October 2020, was expected to be completed in fourth-quarter 2021, post the approval of the New Mexico Public Regulation Commission (“NMPRC”). However, following the rejection by NMPRC, the companies filed an appeal to the New Mexico Supreme Court against the decision.
In March 2023, PNM Resources, Avangrid and NMPRC filed a combined request before the New Mexico Supreme Court to reject the companies' appeal of the December 2021 NMPRC refusal and return the case to NMPRC.
After continuous delay, both companies signed an amendment of the merger agreement to push the closure date to Dec 31, 2023, by their mutual consent. With the close of 2023, there was neither any clear timing on the resolution of the court’s review of the New Mexico regulator’s denial of the merger nor any subsequent regulatory action. The merger agreement was set to expire on Dec 31, 2023, after which either AVANGRID or PNM Resources might cancel it if the merger had not yet been completed. Avangrid terminated the agreement due to the failure to get the necessary final regulatory clearances by the date.
In the context of the termination of the Merger Agreement, the terms of the Commitment Letter, which stipulated to provide or arrange financing to the extent required for the completion of the Merger for Avangrid, automatically terminated the Merger Agreement.
AGR’s Focus on Renewable Energy
While the merger agreement with PNM Resources has come to an end, AVANGRID remains focused on developing New Mexico's wind and solar energy resources. With more than $9 billion of incremental capital projects organically secured during the pendency of the merger, Avangrid intends to continue to focus on its strong growth prospects.
In addition to the incremental $2 billion of capital projects related to the transmission of clean energy in New York, AGR will focus on delivering more than $5 billion of capital projects under its multiannual rate plans in New York and Maine, repowering more than $5 billion of renewable energy assets under the benefits of the Inflation Reduction Act (IRA).
The company is progressing on its Nation-Leading Vineyard Wind 1 offshore project, with five wind turbines having completed installation by December 2023. The 806-megawatt (MW) project is expected to start commercial operations in 2024.
Renewable Energy Generation is on the Rise
The passage of IRA will support and accelerate the utilities’ transition toward clean-energy sources. The Act entails an opportunity for a wide range of low-cost clean energy solutions in a predictable way for a long time and will create earnings visibility.
Per the U.S. Energy Information Administration (EIA), U.S. energy-related carbon emissions are expected to decrease 3% in 2023. Most of this reduction in emissions is due to less use of coal, with coal-related carbon emissions declining 18% from the 2022 level. Per the same report, the annual share of U.S. electricity generation from renewable energy sources will rise 22% and 24% in 2023 and 2024, respectively. Per EIA, solar and wind generation, in unison, will overtake electric power generation from coal for the first time ever in 2024, exceeding coal by nearly 90 billion kilowatt-hours.
AVANGRID and PNM Resources are both committed to lowering emissions and adding more renewable sources to the generation portfolio. Along with PNM and AGR, some other electric power industry companies like Xcel Energy Inc. XEL and NextEra Energy, Inc. NEE are also adopting measures to meet clean-energy targets.
Xcel Energy is reducing coal usage and targets to lower emissions by at least 80% by 2030 and achieve carbon neutrality by 2050. After completing six wind projects with 1,500 MW capacities in 2020, the company completed four wind farms, adding another 800 MW of clean energy generation capacity to its portfolio. Its total wind capacity is 11,000 MW, out of which 4,500 MW is from owned wind farms.
XEL’s long-term (three- to-five year) earnings growth rate is 6.02%. The Zacks Consensus Estimate for 2024 EPS indicates a year-over-year increase of 6.9%.
NextEra Energy is aiming to reduce total carbon emissions by 67% by 2025 from the 2005 level. It continues to work on its strategy of making a long-term investment in clean-energy assets. The company expects to be able to add 33-42 gigawatts of new renewables in the 2023-2026 period to the generation portfolio via clean-energy investments.
NEE’s long-term earnings growth rate is 8.18%. The Zacks Consensus Estimate for 2024 EPS indicates a year-over-year increase of 8.8%.
Price Performance
In the past three months, shares of AGR have risen 16.2% compared with the industry’s 12.6% growth.
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Zacks Rank
AGR currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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