European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<ul>
<li>The New Mexico Supreme Court denied a joint motion filed by <a href="https://www.smartkarma.com/entities/pnm-resources-inc" target="_blank" data-smartkarma-citation="entities:16546:1" rel="noopener">PNM Resources (PNM US)</a>, <a href="https://www.smartkarma.com/entities/avangrid-inc" target="_blank" data-smartkarma-citation="entities:26503:1" rel="noopener">Avangrid Inc (AGR US)</a> and the New Mexico Public Regulation Commission last February.</li>
<li>The New Mexico Court assess the operation in an oral hearing convened next September. The delay of the decision implies higher uncertainty about the closing of this deal.</li>
<li>I continue to believe that Iberdrola/Avangrid's acquisition will be completed. PNM shares look fairly valued on an EV/Fwd EBITDA basis, therefore I see it as a reasonably balanced risk-reward proposition. Long.
</li>
</ul>


The New Mexico Supreme Court denied a joint motion filed by PNM Resources (PNM US), Avangrid Inc (AGR US) and the New Mexico Public Regulation Commission last February.
The New Mexico Court assess the operation in an oral hearing convened next September. The delay of the decision implies higher uncertainty about the closing of this deal.
I continue to believe that Iberdrola/Avangrid's acquisition will be completed. PNM shares look fairly valued on an EV/Fwd EBITDA basis, therefore I see it as a reasonably balanced risk-reward proposition. Long.



Iberdrola/PNM Resources: Long-Distance Race

<ul>
<li>Iberdrola SA has not abandoned its strategic plan in the United States, which includes the acquisition of PNM Resources through its American subsidiary Avangrid Inc.</li>
<li>Iberdrola is convinced that the transaction will be unblocked in the coming weeks, either because the appeal prospers or because of changes in the regulator.</li>
<li>I retain my TP of $50.3 cash takeout price (consideration offered by Avangrid/Iberdrola) vs. my $49.8/share median implied valuation. My TP represents 8.5% upside plus a 2.9% dividend yield.</li>
</ul>


Iberdrola SA has not abandoned its strategic plan in the United States, which includes the acquisition of PNM Resources through its American subsidiary Avangrid Inc.
Iberdrola is convinced that the transaction will be unblocked in the coming weeks, either because the appeal prospers or because of changes in the regulator.
I retain my TP of $50.3 cash takeout price (consideration offered by Avangrid/Iberdrola) vs. my $49.8/share median implied valuation. My TP represents 8.5% upside plus a 2.9% dividend yield.


<ul>
<li>The deal did not pass muster with the New Mexico PRC (the last hurdle) but still is strategic for Iberdrola, hence the longstop date os extended to 20 April 2023.</li>
<li>There should be higher chances to obtain the green light. On a standalone basis, my TP for PNM is $50.47/share. Gross spread is 9.2%, with likely a year to closing. </li>
<li>Recommendation is Long PNM US, underpinned by stand-alone comparables based valuation and a 2.9% dividend yield. There is the possibility of further upside coming from a sweetening of the offer price.</li>
</ul>


The deal did not pass muster with the New Mexico PRC (the last hurdle) but still is strategic for Iberdrola, hence the longstop date os extended to 20 April 2023.
There should be higher chances to obtain the green light. On a standalone basis, my TP for PNM is $50.47/share. Gross spread is 9.2%, with likely a year to closing. 
Recommendation is Long PNM US, underpinned by stand-alone comparables based valuation and a 2.9% dividend yield. There is the possibility of further upside coming from a sweetening of the offer price.


Iberdrola/PNM Resources: Longstop Date Extension

<ul>
<li>The New Mexico Public Regulatory Commission voted unanimously in favor of rejecting the acquisition of <a href="https://www.smartkarma.com/entities/pnm-resources-inc" target="_blank" data-smartkarma-citation="entities:16546:1" rel="noopener">PNM Resources (PNM US)</a> by <a href="https://www.smartkarma.com/entities/avangrid-inc" target="_blank" data-smartkarma-citation="entities:26503:1" rel="noopener">Avangrid Inc (AGR US)</a>, a subsidiary of <a href="https://www.smartkarma.com/entities/iberdrola-sa" target="_blank" data-smartkarma-citation="entities:21276:1" rel="noopener">Iberdrola SA (IBE SM)</a>.</li>
<li>Iberdrola could appeal to the New Mexico Supreme Court, although this process could take a long time or work towards obtaining approval from the PRC.</li>
<li>The operation enters an uncertain situation, with a very high probability that it will finally not materialise. Median implied valuation of PNM Resources (comparables EV/Fwd EBITDA based) is $50.14/share. Expect short-term share price weakness.</li>
</ul>


The New Mexico Public Regulatory Commission voted unanimously in favor of rejecting the acquisition of PNM Resources (PNM US) by Avangrid Inc (AGR US), a subsidiary of Iberdrola SA (IBE SM).
Iberdrola could appeal to the New Mexico Supreme Court, although this process could take a long time or work towards obtaining approval from the PRC.
The operation enters an uncertain situation, with a very high probability that it will finally not materialise. Median implied valuation of PNM Resources (comparables EV/Fwd EBITDA based) is $50.14/share. Expect short-term share price weakness.


Iberdrola/PNM Resources: PRC Vetoes the Purchase of PNM

<ul>
<li>
Deals in the regulated power industry have longer closing times (and higher spreads) than those of other sectors.  On 2 November, Ashley Schannauer, the hearing examiner for the New Mexico Public Regulation Commission in charge of the merger application, recommended against the proposed $4.3 billion merger between <a href="https://www.smartkarma.com/entities/avangrid-inc" target="_blank" data-smartkarma-citation="entities:26503:1" rel="noopener">Avangrid Inc (AGR US)</a>, an affiliate of <a href="https://www.smartkarma.com/entities/iberdrola-sa" target="_blank" data-smartkarma-citation="entities:21276:1" rel="noopener">Iberdrola SA (IBE SM)</a>, and <a href="https://www.smartkarma.com/entities/pnm-resources-inc" target="_blank" data-smartkarma-citation="entities:16546:1" rel="noopener">PNM Resources (PNM US)</a>, saying its potential harms outweigh benefits to the public. Investors are getting nervous on the stumbling block of Mr. Schannauer's 447-page report.
</li>
<li>
Parties have until 12 November to file responses to the hearing examiner's report, after which commissioners could hold a hearing or vote on the proposal. If the merger is rejected by the commission, the company could submit a revised proposal. Also, the commission’s decision can be appealed to the New Mexico Supreme Court.
</li>
<li>
The median implied valuation of PNM Resources (comparables EV/Fwd EBITDA based, source Capital IQ consensus) is $50.14/share.
</li>
<li>
The main hurdle to completing this deal is New Mexico regulatory approval. Nevertheless, my understanding, after conversations with Iberdrola's IR and considering the stance of Public Regulation Commission staff, is that the deal should complete, although it may take longer than the initial "October to December 2021" deadline. My TP for PNM is $50.3/share. Investors have made some money on this deal, several times (as can be seen in the chart in the insight). Gross spread as of 3 November is 5.3%. Recommendation is long PNM US, underpinned by stand-alone comparables-based valuation.
</li>
</ul>



Deals in the regulated power industry have longer closing times (and higher spreads) than those of other sectors.  On 2 November, Ashley Schannauer, the hearing examiner for the New Mexico Public Regulation Commission in charge of the merger application, recommended against the proposed $4.3 billion merger between Avangrid Inc (AGR US), an affiliate of Iberdrola SA (IBE SM), and PNM Resources (PNM US), saying its potential harms outweigh benefits to the public. Investors are getting nervous on the stumbling block of Mr. Schannauer's 447-page report.


Parties have until 12 November to file responses to the hearing examiner's report, after which commissioners could hold a hearing or vote on the proposal. If the merger is rejected by the commission, the company could submit a revised proposal. Also, the commission’s decision can be appealed to the New Mexico Supreme Court.


The median implied valuation of PNM Resources (comparables EV/Fwd EBITDA based, source Capital IQ consensus) is $50.14/share.


The main hurdle to completing this deal is New Mexico regulatory approval. Nevertheless, my understanding, after conversations with Iberdrola's IR and considering the stance of Public Regulation Commission staff, is that the deal should complete, although it may take longer than the initial "October to December 2021" deadline. My TP for PNM is $50.3/share. Investors have made some money on this deal, several times (as can be seen in the chart in the insight). Gross spread as of 3 November is 5.3%. Recommendation is long PNM US, underpinned by stand-alone comparables-based valuation.



Hearing Examiner Recommends Against Iberdrola (Avangrid)/PNM Resources Deal

United States

Avangrid, Inc. operates as an energy services holding company. The Company engages in the regulated energy transmission and distribution business through wind and solar power, as well as natural gas utilities. Avangrid serves customers in the United States.

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Avangrid (AGR US)

Iberdrola/PNM Resources: Long-Distance Race

The New Mexico Supreme Court denied a joint motion filed by PNM, Avangrid and the NMPRC last February. The delay of the decision implies higher...

Jesus Rodriguez Aguilar

Iberdrola/PNM Resources: One to Watch

The deal is coming back to life with the prospect of the internal changes that the Regulatory Commission is going to undergo this fall, which are...

Jesus Rodriguez Aguilar

Iberdrola/PNM Resources: Longstop Date Extension

Although the deal has entered an uncertain situation, Iberdrola will not let it go without a fight and chances may increase in the future. Gross...

Jesus Rodriguez Aguilar

Iberdrola/PNM Resources: PRC Vetoes the Purchase of PNM

The operation enters an uncertain situation, with a very high probability that it won't materialise. Median implied valuation of PNM Resources...

Jesus Rodriguez Aguilar

Hearing Examiner Recommends Against Iberdrola (Avangrid)/PNM Resources Deal

TP is $50.3, as the deal should complete, in my view, although it may take longer than the initial deadline. Gross spread is 5.3%. Long PNM US,...

Jesus Rodriguez Aguilar

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