PNM Resources, Inc. PNM inked a deal to sell all its outstanding shares to AVANGRID AGR, one of the largest wind operator in the United States. The deal is approved by both companies' boards of directors but is subject to the company’s shareholder and regulatory approvals.
The transaction is likely to be completed between October and December 2021 and is expected to be accretive to the company's earnings in the first year after its closure.
Notably, the operations of PNM Resources will continue to be overseen locally while the current headquarters of the utilities will be intact in New Mexico and Texas. The customers of PNM Resources' wholly-owned regulated utility subsidiaries are expected to benefit from the shared knowledge and technology of a global organization.
PNM Resources' shareholders will receive $50.30 in cash for each share of the company’s common stock held at closing. The deal value of $4.3 billion reflects 19.3% premium to the utility's 30-day volume weighted average price as of Oct 20.
The deal will create a leading U.S. regulated utility and renewable energy platform, which will provide affordable clean energy to customers. Also, it will be a renewable energy entity with electric and gas utilities in complementary geographies. The strategic acquisition will increase operational and regulatory diversification along with expanding regulated utility operations.
Moreover, this combination will establish such a financial profile that it will help the consolidated company pursue near- and long-term growth opportunities to enhance its electric transmission and renewable energy capacity. Backed by AVANGRID's parent company Iberdrola, S.A., funding of growth projects won’t be a concern for the combined entity.
Following the deal closure, the combination will serve more than 4 million electric and natural gas customers of 10 regulated utilities in New York, Connecticut, Maine, Massachusetts, New Mexico and Texas. These combined operations will be supported by $14 billion of rate base including more than 104,000 miles of electric transmission and distribution lines.
AVANGRID's Motive Behind the Deal
The arrangement will aid AVANGRID to expand its renewables business in the Southwest beyond its existing 1.9-gigawatt capacity worth wind projects in New Mexico and Texas, and 200 megawatts of wind and solar capacity in Arizona. The scope and diversity of the combined business augments the ability to invest in energy efficiency and new technologies.
Rationale Behind the Merger
PNM Resources boasts a long-standing expertise in fulfilling environmental regulations. The company is focused on developing cost-effective generation units to provide reliable and affordable power. It is also making efforts to stall its coal-fired generation by 2031 and build an emissions-free power generating portfolio by 2040 to bring cleaner energy sources to its production portfolio. The company's current move to merge is in sync with the same strategy.
Also, it plans an early exit from the Four Corners Power Plant, which will enable the combined corporate body to bring additional renewable resources to the grid in support of New Mexico's rising renewable energy standards and 2045 carbon-free mandate.
Zacks Rank & Price Performance
The stock currently carries a Zacks Rank #2 (Buy).
In the past month, shares of the company have gained 26.5%, outperforming the industry’s 11% growth.
Other Stocks to Consider
Other top-ranked electric utilities, which carry the same Zacks Rank as PNM Resources at present include Alliant Energy Corporation LNT and Dominion Energy D. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Alliant Energy has a long-term (three-five years) earnings growth rate of 5.76%. It delivered an earnings surprise of 30.91%, on average, in the last four quarters.
Dominion Energy has a long-term earnings growth rate of 3.58%. It delivered an earnings surprise of 0.94%, on average, in the last four quarters.
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