Santander Research |According to the Spanish press, the US Federal Energy Regulator (FERC) has given its approval for Iberdrola (Baa1 e, BBB+ e, BBB+ e) to buy the minority stakes in its US subsidiary Avangrid. On 17 May, Iberdrola had announced its intention to acquire 18.4% of Iberdrola shares held by minority shareholders to take full control of the group for a cost of approximately $2.55 billion. The US Securities and Exchange Commission (SEC) gave the green light at the end of August. Avangrid will hold a shareholder meeting on 26 September to approve the deal, and only permits from Maine and New York state regulators are pending.
Research view: We view the purchase of the minority stakes as positive for Iberdrola. The transaction reinforces the group’s commitment to regulated networks in a key and growing country. It will also reduce liquidity leakage to the minority stakes. As the Mexican government completed in February the $6.2 billion acquisition of most of Iberdrola’s assets in the country, Iberdrola has an ample cash position to pay for the Avangrid deal, as well as the acquisition announced on 2 August of Electricity North West (ENW) in the UK for £2.1 billion, including the subscription of a £400 million capital increase in ENW. We continue to view Iberdrola as a global leader in the energy transition, but we also believe that its credit curve is expensive, hence our Neutral recommendation on assessment grounds, so we would prefer to add exposure through the primary market.
