A showpiece acquisition by Iberdrola, the world’s third-biggest utility, has been rejected by US regulators, in a sign of the worldwide impact of a criminal investigation in the group’s home country of Spain.
The New Mexico Power Regulation Commission voted unanimously late on Wednesday against the proposed $8.3bn purchase of PNM Resources, which had been intended to transform Iberdrola’s subsidiary Avangrid into one of the biggest companies in the US utilities sector.
The regulator said the benefits of Iberdrola’s planned purchase were “not as significant as they are portrayed and are insufficient to overcome the potential risk”. It cited “quality of service issues, including reliability as well as risks of improper subsidisation of non-utility activities” and “even more so . . . concerns about Avangrid/Iberdrola’s qualifications in light of the ongoing criminal investigation in Spain involving high level officers”.
Ignacio Galán, Iberdrola’s chief executive and chair, was this year placed under criminal investigation as part of a probe into ties between leading Spanish companies and a former police officer involved in a series of high-profile scandals.
Iberdrola announced the acquisition of New Mexico-based PNM last year as part of its plans to increase its global role in areas such as renewables. The deal would have turned Avangrid into the third-biggest renewable energy company in the US with a presence in 24 states, although it also owns fossil fuel plants as well as wind and solar assets.
“We are examining the best ways to move forward in New Mexico,” Iberdrola said after the regulator’s decision. “We continue to see huge opportunities to build on the success we have achieved in the US 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 probably be about 4 per cent lower than he had previously forecast but added that the rejection of the deal “may alleviate some investor concerns over a stretched balance sheet”.
Iberdrola has pledged to spend €75bn over a six-year period to 2025 to capitalise on the global shift away from fossil fuels. Farman had estimated Iberdrola’s ratio of net debt to earnings at 4.2 times for 2022 but said this would fall to 3.8 times without the PNM acquisition.
The group now has to decide whether to abandon the PNM bid, request a rehearing of the regulator’s decision or file an appeal to the New Mexico Supreme Court — a process that could take months.
While the Spanish investigation does not amount to a formal accusation that a crime has been committed, a Madrid court has summoned Galán to give testimony as a suspect next month. The case centres 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 for some of Spain’s biggest groups.
In Iberdrola’s case, the utility hired the services of Villarejo and his Cenyt company between 2004 and 2017 at a cost of more than €1m.
“Iberdrola denies any wrongdoing in relation to its contracting of Cenyt and we continue to co-operate with the authorities to provide all the information needed as part of its investigation,” the group said. “No individuals have been indicted in this investigation and Iberdrola itself is not being investigated.”
The group was classified last week by rating agency Standard and Poor’s as one of the world’s best-performing power companies for environmental, social and governance matters.
Other Spanish groups are involved in the Villarejo case, including BBVA, which in 2019 was put under investigation as a legal entity of interest over allegations including wiretapping related to more than €10m worth of contracts with Villarejo’s company. The bank said it bore no responsibility for the facts under investigation.
Iberdrola’s $8.3bn acquisition of US utility PNM rejected by regulators
Pinoy Variant