European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<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

There are two approvals pending:
<ul>
<li>
New Mexico Public Regulation Commission (PRC)
</li>
<li>
Nuclear Regulatory Commission
</li>
</ul>
PRC hearing examiner, Ashley Schannauer, wants Avangrid to address concerns and explain why the company didn't make some disclosures ($25 million in penalties and disallowances for poor service over the past 16 months). The hearing examiner order directs the filing companies to submit response proposals by 18 May and tentatively scheduled a status conference to determine next steps by 28 May.
Meanwhile Iberdrola has posted solid Q1 results and has announced that it will subscribe to 81.5% ($3,260 mn) of Avangrid's $4 bn increase, with the Qatar Investment Authority (QIA, top shareholder in Iberdrola with a 6% stake) subscribing the remaining $740 mn.
<div>
The concerns of the PRC hearing examiner, although legitimate in my view, are more akin to a public dress down "you kids have been very naughty", but should not significantly delay the approvals needed for the acquisition of PNM. The deal seems on track for completion during H2 2021.
PNM closed on 12 May at $49.15, vs. an offer price of $50.3.
</div>
<ul style="list-style-type: disc;">
<li>which represents a gross spread of 2.3%, c. 4.6% annualized (assuming the deal completes in six months), which I consider attractive for a low-risk deal that is almost certainly to close in H2 2021.</li>
<li>Reiterate Long PNM.</li>
</ul>

There are two approvals pending:


New Mexico Public Regulation Commission (PRC)


Nuclear Regulatory Commission


PRC hearing examiner, Ashley Schannauer, wants Avangrid to address concerns and explain why the company didn't make some disclosures ($25 million in penalties and disallowances for poor service over the past 16 months). The hearing examiner order directs the filing companies to submit response proposals by 18 May and tentatively scheduled a status conference to determine next steps by 28 May.
Meanwhile Iberdrola has posted solid Q1 results and has announced that it will subscribe to 81.5% ($3,260 mn) of Avangrid's $4 bn increase, with the Qatar Investment Authority (QIA, top shareholder in Iberdrola with a 6% stake) subscribing the remaining $740 mn.

The concerns of the PRC hearing examiner, although legitimate in my view, are more akin to a public dress down "you kids have been very naughty", but should not significantly delay the approvals needed for the acquisition of PNM. The deal seems on track for completion during H2 2021.
PNM closed on 12 May at $49.15, vs. an offer price of $50.3.


which represents a gross spread of 2.3%, c. 4.6% annualized (assuming the deal completes in six months), which I consider attractive for a low-risk deal that is almost certainly to close in H2 2021.
Reiterate Long PNM.


Iberdrola (Avangrid)/PNM Resources: Regulator's Reprimand and Capital Increase

Iberdrola, via its subsidiary Avangri,d announced the acquisition of PNM on 21 October.announced the merger of both companies.
<ul>
<li>Under the proposed transaction, shareholders of PNM will receive $50.30 per share, in cash, representing a premium of 10% over PNM's share price as of Oct. 20, 2020.</li>
<li>for a transaction value, as reported, of $8,300 mn and $4,342 mn in total consideration to shareholders.</li>
<li>11.7x EV/Fwd EBITA and 24.,4x P/Fwd EPS.</li>
</ul>
The hurdles are being cleared (read on for details) and the transaction is expected to close by the end of December.
PNM began trading on 12 January at $48.41,
<ul>
<li>which represents a gross spread of 3.75%, which I consider attractive for alow-risk deal that is almost certainly to close by the end of December 2021, i.e. almost a year.</li>
<li>Recommendation is LONG PNM.</li>
<li>Average 3-months daily volume is 2,012,899</li>
</ul>

Iberdrola, via its subsidiary Avangri,d announced the acquisition of PNM on 21 October.announced the merger of both companies.

Under the proposed transaction, shareholders of PNM will receive $50.30 per share, in cash, representing a premium of 10% over PNM's share price as of Oct. 20, 2020.
for a transaction value, as reported, of $8,300 mn and $4,342 mn in total consideration to shareholders.
11.7x EV/Fwd EBITA and 24.,4x P/Fwd EPS.

The hurdles are being cleared (read on for details) and the transaction is expected to close by the end of December.
PNM began trading on 12 January at $48.41,

which represents a gross spread of 3.75%, which I consider attractive for alow-risk deal that is almost certainly to close by the end of December 2021, i.e. almost a year.
Recommendation is LONG PNM.
Average 3-months daily volume is 2,012,899


PNM Resources - Iberdrola, Work-In-Progress, Attractive Spread

<a href="https://www.smartkarma.com/entities/iberdrola-sa" target="_blank" data-smartkarma-citation="entities:21276:1" rel="noopener">Iberdrola SA (IBE SM)</a> accelerates its expansion in the United States. <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 81.5% Iberdrola controlled company has announced an agreement to acquire <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 New Mexico and Texas power company listed on the NYSE.
Iberdrola offers $50.3 in cash, for a total equity value of $4,317.5 mn (€3,663.5 mn), according to a relevant fact sent to the CNMV. Iberdrola has undertaken to provide Avangrid with "the funds that are necessary" for the price of the transaction.
The offer price represents:
<ul>
<li>10% premium over PNM's price per share at the close of Tuesday 20 October and 19.3% premium to PNM Resources 30-day VWAP</li>
<li>22.8x Capital IQ's consensus P/E estimate</li>
<li>2.2x P/BV</li>
<li>12.6x EV/Forward EBITDA vs. 10.9x for comparable companies.</li>
</ul>
The proposed transaction is all cash and I do not see obvious regulatory issues, therefore I expect the merger arbitrage spread to narrow quickly.

Iberdrola SA (IBE SM) accelerates its expansion in the United States. Avangrid Inc (AGR US) , an 81.5% Iberdrola controlled company has announced an agreement to acquire Pnm Resources (PNM US), a New Mexico and Texas power company listed on the NYSE.
Iberdrola offers $50.3 in cash, for a total equity value of $4,317.5 mn (€3,663.5 mn), according to a relevant fact sent to the CNMV. Iberdrola has undertaken to provide Avangrid with "the funds that are necessary" for the price of the transaction.
The offer price represents:

10% premium over PNM's price per share at the close of Tuesday 20 October and 19.3% premium to PNM Resources 30-day VWAP
22.8x Capital IQ's consensus P/E estimate
2.2x P/BV
12.6x EV/Forward EBITDA vs. 10.9x for comparable companies.

The proposed transaction is all cash and I do not see obvious regulatory issues, therefore I expect the merger arbitrage spread to narrow quickly.

PNM Resources - Iberdrola: Friendly Acquisition

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: 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

Iberdrola (Avangrid)/PNM Resources: Regulator's Reprimand and Capital Increase

PRC's concerns delay the approvals needed. The deal seems on track for completion during H2 2021. Gross spread 2.3%, c. 4.6% annualized (assuming...

Jesus Rodriguez Aguilar

PNM Resources - Iberdrola, Work-In-Progress, Attractive Spread

PNM began trading on 12 January at $48.41, a gross spread of 3.75%, which I consider attractive for a low-risk deal that is almost certainly to...

Jesus Rodriguez Aguilar

PNM Resources - Iberdrola: Friendly Acquisition

Iberdrola offers $50.3 in cash. Iberdrola has undertaken to provide Avangrid with the necessary funds. I do not see any obvious regulatory issues,...

Jesus Rodriguez Aguilar

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