Iberdrola’s $ 8.3 billion acquisition of US utility PNM rejected by regulators

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A flagship acquisition of Iberdrola, the third largest utility in the world, has been rejected by US regulators, a sign of the global impact of a criminal investigation in the group’s home country of Spain.

The New Mexico Electricity Regulatory Commission on Wednesday night voted unanimously against PNM Resources’ $ 8.3 billion purchase plan, which was intended to transform Iberdrola’s subsidiary, Avangrid. , into one of the largest companies in the US utility industry.

The regulator said the benefits of the planned purchase of Iberdrola were “not as great as described and are insufficient to overcome the potential risk”. He cited “quality of service issues, including reliability as well as the risk of inappropriate subsidization of non-utility activities” and “more. . . concerns about Avangrid / Iberdrola’s qualifications in light of the ongoing criminal investigation in Spain involving high-level officers ”.

Ignacio Galán, managing director and chairman of Iberdrola, has been the subject of a criminal investigation this year as part of an investigation into the links between large Spanish companies and a former police officer involved in a series of high-profile scandals .

Iberdrola announced last year the acquisition of New Mexico-based PNM as part of its plans to increase its global role in areas such as renewable energy. The deal would have made Avangrid the third-largest renewable energy company in the United States with a presence in 24 states, although it also has fossil-fueled power plants as well as wind and solar assets.

“We’re looking at the best ways to move forward in New Mexico,” Iberdrola said after the regulator’s decision. “We continue to see tremendous opportunities to build on the success we have had in the United States, and we are committed to playing our part in supporting the country’s efforts to expand its renewable energy infrastructure.”

Ahmed Farman, equity analyst at Jefferies, estimated that without PNM’s contribution, Iberdrola’s net income for 2022 would likely be around 4% lower than he previously expected, but added that the rejection of the deal “could alleviate some investor concerns about a tight balance. sheet”.

Iberdrola has pledged to spend € 75 billion over six years until 2025 to take advantage of the global shift away from fossil fuels. Farman had estimated Iberdrola’s net debt-to-earnings ratio at 4.2 times for 2022, but said it would drop to 3.8 times without the PNM acquisition.

The group must now decide to drop PNM’s offer, seek a new hearing of the regulator’s decision, or file an appeal in the New Mexico Supreme Court – a process that could take months.

Although the Spanish investigation does not constitute a formal charge that a crime has been committed, a court in Madrid has summoned Galán to testify as a suspect next month. The case centers on José Manuel Villarejo, a former police commissioner who combined his official post with corporate security and intelligence work, including efforts to foil takeover bids from some of Spain’s biggest groups. .

In the case of Iberdrola, the electricity company called on the services of Villarejo and its company Cenyt between 2004 and 2017 at a cost of more than one million euros.

“Iberdrola denies any wrongdoing in connection with its contract with Cenyt and we continue to cooperate with the authorities to provide all the information necessary as part of its investigation,” the group said. “No individual has been charged in this investigation and Iberdrola himself is not under investigation.”

The group was ranked last week by the Standard and Poor’s rating agency as one of the world’s most successful utilities on environmental, social and governance issues.

Other Spanish groups are involved in the Villarejo case, including BBVA, which in 2019 was investigated as a legal entity of interest for allegations including wiretapping linked to more than 10 million euros in contracts with the Villarejo company. The bank said it was not responsible for the facts under investigation.


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