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PPL Signs Buyout & U.K. Divestiture Deal With National Grid

Zacks Equity Research
·4 min read


PPL Corporation PPL inked a deal to sell its U.K. utility business Western Power Distribution (WPD) to National Grid plc NGG for $10.88 billion (£7.8 billion). Also, it agreed to pay $3.8 billion to take over National Grid's Rhode Island utility business, The Narragansett Electric Company.

These agreements are in sync with the utility’s plans to strengthen its position in the domestic business. The sale is likely to close within four months while the buyout is expected to be completed within a year.

Deal Details

Per the terms, PPL Corp. will sell its interests in WPD in an all-cash transaction valued at $20.1 billion (£14.4 billion) including an assumption of debt worth $9.21 billion (£6.6 billion). It will result in net cash proceeds of $10.2 billion. It plans to utilize the proceeds to fund a concurrent acquisition, which amounts to $5.3 billion, including an assumption of $1.5-billion debt.

The remaining net cash proceeds will be used to further strengthen its balance sheet and breed opportunities for growth like investing incremental capital in PPL Corp.'s utilities or in renewables and share repurchases.

Deal Benefits

With the winding up of the international operations, the utility’s operations will no more be subject to foreign currency risks. It is also aiming to maintain cash from operations-to-total debt ratio in the range of 16-18% while the company’s debt-to-total debt ratio is likely to fall below 25%.

Following the closure of both deals, the company will have 780,000 customers from Narragansett Electric Company, totaling its customer base to 3.5 million. The combined entity will have a rate base of nearly $22 billion and offer significant investment opportunities.

Conclusion

Even though WPD has been a strong contributor to the utility’s performance over time, management believes that this sale and the strategic repositioning of its portfolio, which is fully U.S.-based, are expected to boost its shareowner value. Along with deepening its focus on rate-regulated U.S. utilities, this move will strengthen credit metrics, enhance long-term earnings growth and provide greater financial flexibility to the company to invest in sustainable energy solutions. Moreover, it will help PPL Corp. focus on building tomorrow's energy infrastructure and advance toward a cleaner energy future in the United States. Also, with the folding up of its international operations, the utility’s operations will no more be susceptible to foreign currency risks.

The utility expects to invest $14.1 billion during the 2021-2025 forecast period. Its capital investment plan primarily focuses on infrastructure construction projects for generation, transmission and distribution. Courtesy of the ongoing investments in strengthening its infrastructure, customers have been experiencing far less outages for sometime now. These planned investments will expand the rate base from $31.3 billion in 2021 to $34.8 billion in 2025.

Other Utilities Expanding Via Acquisition

In New Mexico, PNM Resources PNM received approvals from both FERC and the New Mexico Public Regulation Commission to acquire the Western Spirit Transmission Line in 2021. This buyout will allow it to cater to the rising clean energy production in the state. Dominion Energy’s D subsidiary acquired the 150-megawatt Hardin solar generating facility from Invenergy in Ohio, which recently entered commercial service.

Zacks Rank & Price Performance

Currently, the stock carries a Zacks Rank #3 (Hold). Shares of the company have risen 50.9% outperforming the industry’s gain of 25.7% in the past year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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