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M&A in Power Transmission: Americas take the lead in 2018 [free access]

February 11, 2019

The global power transmission segment, both in the utility and equipment spaces, witnessed numerous mergers and acquisitions (M&A) during 2018. Majority of the M&A deals took place in the US followed by Latin America in the utility segment. In North America, two deals grabbed the limelight, namely, Dominon Energy’s acquisition of the controversial SCANA Corporation and Toronto-based Hydro One’s acquisition of Washington-based Avista. While the former transaction achieved closure recently, the latter one seems to be falling apart.

 

US-based GridLiance, which is a pure play transmission company, managed to expand its footprint in the states of Illinois and Oklahoma, and the city of Nixa during 2018.

 

In Europe, the most prominent deal in the power transmission sector was the acquisition of a 20 per cent stake in Germany’s transmission system operator (TSO) 50Hertz Transmission GmbH by German state-owned development bank KfW, mainly to keep out Chinese investment in the TSO.

 

In Asia, the Indian transmission segment witnessed some consolidation during the year. Meanwhile, China increased its footprint in overseas markets.


Significant M&A activity took place in the equipment space as well. Most of these deals were in Europe and the US with the exception of Japan-based Hitachi Limited’s acquisition of the Power Grid division of Switzerland-based equipment manufacturer ABB, which was also the most notable.

 

Most M&A deals take about six to 18 months to achieve closure, depending on the nature and size of the deal as well as the approval procedures involved. The motivations for stake sale by companies vary with each deal ranging from focusing on core business to achieving a reprieve from financial woes. Pure play transmission companies gained prominence during 2018 as the segment is getting due recognition as an independent (electricity generation and distribution) profitable business, particularly in markets that have opened the sector to private players. No M&A activity took place in Africa and the Middle East where the power sector continues to be controlled by state-owned integrated utilities.

 

Global Transmission Research presents the highlights of the key M&A deals that were either announced or completed in the transmission segment during 2018.

 

North America

Dominion Energy-SCANA: In January 2019, the US-based Dominion Energy and SCANA Corporation officially completed their impending merger deal. Each SCANA share was converted into 0.6690 shares of newly issued Dominion Energy stock. The conversion resulted in a transaction value of USD6.8 billion, in addition to the assumption of approximately USD6.6 billion in existing consolidated SCANA net debt.

 

SCANA, which has over 2 million electricity and gas customers, operates through its subsidiaries South Carolina Electric & Gas (SCE&G) as well as SCANA Energy Marketing Inc. and Public Service Company of North Carolina Inc. across South Carolina and Georgia. SCE&G has been mired in controversy after it abandoned the expansion of the VC Summer Nuclear Station with two nuclear reactors at an investment of USD9 billion in July 2017. This came as a shock to SCE&G customers who had paid over USD2 billion in the form of higher power bills for the shelved project. Following the lawsuit on the issue, in January 2018, Dominion offered to buy out SCANA Corporation, lower rates and refund SCE&G’s electricity customers some of the amount they had paid toward VC Summer. While approving the deal, the Public Service Commission (PSC) of South Carolina also lowered electric rates for SCE&G customers by 15 per cent. However, SCE&G will continue to collect over USD2 billion for the defunct nuclear project for the next 20 years.

 

The merged company will now operate a generation portfolio of about 31,400 MW, and own 93,600 miles (150,696 km) of electric transmission and distribution lines to deliver energy to approximately 6.5 million regulated consumers. It will also own a 106,400-mile (171,304-km) natural gas pipeline network, and will thus operate one of the nation's largest natural gas storage systems with 1 trillion cubic feet of capacity.

 

Oncor Electric-InfraREIT: In October 2018, Oncor Electric Delivery Company LLC (a subsidiary of Sempra Energy owning a stake of 80.25 per cent) signed a deal worth USD1.28 billion to acquire US-based InfraREIT Inc. Oncor will also take over InfraREIT's outstanding debt worth USD945 million. The deal will help Oncor expand its base in the Texas region. InfraREIT is a real estate investment trust engaged in owning and leasing rate-regulated electricity delivery infrastructure assets in Texas. It leases all the regulated assets to its affiliate, Sharyland Utilities LP. As part of the transaction, Sempra Energy will acquire a 50 per cent limited partnership interest in Sharyland Utilities for approximately USD98 million. Further, upon the closing of the transaction, Oncor will own and operate Sharyland Utilities' and Sharyland Distribution and Transmission Services LLC's (SDTC) existing transmission assets in Central Texas, West Texas, Texas Panhandle and South Plains. Following this asset exchange, Sharyland Utilities will operate as an independent transmission utility in South Texas. The transaction is subject to approvals from the Texas Public Utilities Commission (PUC) and the Federal Energy Regulatory Commission (FERC). Sempra and Oncor expect to close the transaction in mid-2019.

 

Agro Infrastructure-Hudson Transmission Partners: In September 2018, Argo Infrastructure Partners LLC, a US-based investment management company, announced its plans to acquire the equity interests of Ares EIF Management LLC and Starwood Energy Group Global LLC, in Hudson Transmission Partners (HTP)—a subsidiary of PowerBridge, formed for the development of the Hudson Transmission Project. This project is a 660 MW high voltage direct current (HVDC) transmission system between New York City and PJM Interconnection’s service area. It involves a 7.1-mile-long (11.4 km) subsea cable under the Hudson River, connecting the Hudson converter station located in Ridgefield, New Jersey, to a substation located in New York City. The HVDC project, which commenced commercial operations in June 2013, serves as an additional power source for New York Power Authority’s customers in New York. According to the transaction, an undisclosed subsidiary of PowerBridge will operate the acquired assets on behalf of its owners. The transaction is expected to close in early 2019, subject to regulatory approvals.

 

GridLiance-EEI: In September 2018, US-based GridLiance Holdco, LP (GridLiance) signed an agreement with Electric Energy, Inc. (EEI) to acquire its transmission assets in Illinois. The assets to be acquired include six 161 kV transmission lines crossing the Ohio River, and related transmission equipment located at the Joppa generating station in Illinois. GridLiance was founded in 2014, and owns and operates nearly 600 miles (966 km) of transmission lines and related substation facilities in Oklahoma, Missouri and Nevada. EEI is a subsidiary of Illinois Power Generating Company and is engaged in the generation and distribution of electricity. The acquisition will expand GridLiance’s transmission footprint and allow it to operate in the Midcontinent Independent System Operator’s Regional Transmission Organisation. The transaction is expected to close during the second quarter of 2019, subject to federal and state regulatory approvals.

 

GridLiance-PEC: In July 2018, GridLiance signed an asset purchase agreement with the People’s Electric Cooperative (PEC) to acquire 55 miles (88.6 km) of its 138 kV transmission line and a substation, thus expanding its footprint in Oklahoma. GridLiance will help PEC manage the costs of investing in the local transmission system. PEC is a rural electricity transmission and distribution cooperative providing electrical service to approximately 15,000 customers in 11 south central Oklahoma counties.

 

South Central MCN-Nixa’s Transmission Assets: In April 2018, South Central MCN LLC, a subsidiary of GridLiance, received approval from FERC to acquire the transmission assets of the city of Nixa. With this, the former completed its acquisition of Nixa’s 10-mile (16.1-km), 69 kV transmission line between the City of Springfield and the Southwestern Power Administration, as well as four substations and related infrastructure. The Missouri PSC granted South Central MCN a certificate to operate as a public utility in Missouri in 2016. With these approvals, the company has assumed full operational responsibility of Nixa’s transmission assets, effective April 1, 2018. The city of Nixa partnered with GridLiance as it feels that the ever-changing regulatory and tariff processes make it difficult for a small distribution utility like Nixa Electric to operate a transmission network. The city will continue to own the distribution lines.

 

Hydro One-Avista: In 2017, Canada’s Hydro One Limited (Hydro One) announced the acquisition of US-based Avista for a value of USD5.3 billion. In December 2018, however, the deal was stalled by the denial decision of Washington Utilities and Transportation Commission (WUTC) followed by the rejection order issued by Idaho PUC in January 2019. Together, the two companies were to conduct a regulated electricity and natural gas business in North America with over USD25.4 billion in combined assets. Under the proposed deal, Avista was to continue operating as a stand-alone utility in Washington, Oregon, Idaho, Montana and Alaska.

 

WUTC and Idaho PUC found that the companies failed to demonstrate that the transaction was in the public interest. WUTC also denied reconsidering the rejection order, which found that the merger would not safeguard Avista customers from the political and financial risks arising from the fact that Ontario’s provincial government is Hydro One’s largest shareholder (with a 47 per cent stake). In view of the above denial decisions, the Oregon PUC, which was part of a settlement agreement entered in May 2018 between the two companies and the state and citizens’ representatives, issued an order suspending indefinitely the procedural schedule for the merger. As things stand, the deal may remain quashed and Avista may have to find another buyer. This is despite the various other approvals received earlier.

 

First Nations Group-Hydro One: In January 2018, the province of Ontario sold its over 14 million shares (representing 2.4 per cent of its total shares) in Hydro One to OFN Power Holdings LP, a limited partnership wholly owned by Ontario First Nations Sovereign Wealth LP, which is in turn owned by 129 First Nations in Ontario. The deal, totalling nearly CAD260 million, was aimed at strengthening economic relations between Ontario and its indigenous people. It has reduced the province’s ownership share in the distribution company from 49.9 per cent to 47.4 per cent. The shares were priced at CAD18 per piece and have been purchased by the First Nations group through a province-backed 25-year loan of CAD259 million.

 

Latin America

TAESA-Amber Energia SPEs: In December 2018, Brazil-based J&F Investimentos SA’s energy arm Amber Energia reached an agreement to sell its four transmission special purpose entities (SPEs) to local electric power transmission company Transmissora Alianca de Energia Eletrica SA (TAESA), for about BRL942.5 million. The SPEs own 1,227 km of transmission lines with concessions until 2043. As per the agreement, TAESA will acquire 100 per cent of power transmission units Sao Pedro Transmissora de Energia and Sao Joao Transmissora de Energia, as well as 51 per cent of Triangulo Mineiro Transmissora and Vale do Sao Bartolomeu Transmissora de Energia. The transaction hinges on various regulatory approvals, including from Brazil’s electricity regulatory agency (ANEEL) and the business administration watchdog Conselho Administrativo de Defesa Econômica.

 

Chilquinta Energía-CTNG: In December 2018, Chile’s power utility Chilquinta Energía—a subsidiary of Sempra Energy—completed the acquisition of Compañía Transmisora del Norte Grande S.A. (CTNG) from another Chile-based power utility, AES Gener S.A.—a subsidiary of AES Corporation—for a purchase price of approximately USD225.5 million. This follows the authorisation of the sale agreement, signed in July 2018, by the National Economic Prosecutor's Office. CTNG owns the regulated transmission assets in central and northern Chile. This includes a 114-mile (184-km), 110 kV transmission line and substations in the central Valparaiso-Santiago region, located in Chilquinta Energía's service territory; and an 82-mile (132-km), 220 kV transmission line in the northern Antofagasta region. The sale proceeds will help AES pay back debt and is in line with its strategy to focus on its prime assets.

 

Red Eléctrica Chile-Centinela Transmisión: In July 2018, Red Eléctrica Chile SpA, a subsidiary of Spain’ Red Eléctrica Internacional, acquired 100 per cent of Centinela Transmisión SA, owned by Minera Centinela, which in turn is owned by Chile-based copper producer Antofagasta, for USD117.2 million. The acquisition included the operational and under-construction projects of Centinela Transmisión, which are likely to generate about USD9 million of annual income for Red Eléctrica Chile. Centinela Transmisión SA owns three transmission lines totalling a length of 265 km, which feed the mining operations of its parent company. The transmission subsidiary was created in November 2016 to facilitate the sale of the transmission network of Minera Centinela. Along with this, the deal includes the expansion projects for these facilities foreseen in Chile’s Transmission System Expansion Plan 2016-17, which are currently being managed and carried out by Centinela Transmisión. The deal strengthens Red Eléctrica’s presence in the Chilean market. It owns a 50 per cent stake in Transmisora Eléctrica del Norte (TEN), which completed the Sistema Interconectado del Norte Grande (SING)–Sistema Interconectado Central (SIC) interconnection project. Meanwhile, the deal is in line with Minera Centinela’s strategy to concentrate on its mining business. 

 

Celsia-EPSA: In February 2018, Colombia-based conglomerate Grupo Argos sold its 100 per cent stake in Colombia-based electricity company Empresa de Energia del Pacifico S.A. E.S.P. (EPSA) to its unit Celsia S.A. E.S.P. Celsia already owned a 50.4 per cent stake in EPSA through its 100 per cent-owned subsidiary Colener S.A.S. With the latest deal, Celsia consolidated a 61.3 per cent equity stake in EPSA. About half of the COP1.47 trillion (at COP737,994 million) raised by Celsia through a share issue of 330 million shares was used to purchase the additional stake in EPSA. Celsia used the remaining half to pay its debt. For Grupo Argos, which now owns 52.93 per cent of Celsia, the stake sale allows it to optimise and strengthen its structure as a holding company and increase visibility on its investments in the energy business.

 

CSG-Transelec: China has been working on expanding economic and political ties with Latin American nations over the last few years. In line with that, in March 2018, China South Power Grid (CSG) received final approvals from the Chinese government to purchase Canada-based Brookfield Infrastructure’s stake in Chile’s largest electric transmission system, Transelec. In December 2017, Brookfield agreed to sell its 27.7 per cent stake in the latter to CSG for USD1.3 billion, subject to approvals. This is part of the next phase of Brookfield’s capital recycling programme, seeking to dispose of mature infrastructure assets and redeploy the proceeds in higher-returning opportunities. Proceeds from the sale of Transelec will be used to fund the former’s growing backlog of organic growth projects as well as its robust pipeline of transactions. Transelec is Chile’s largest pure play power transmission company, with over 10,000 km of electricity lines serving 98 per cent of Chile’s population.

 

Asia

ATL-RInfra Mumbai: Adani Transmission Limited (ATL) acquired a 100 per cent stake in Reliance Infrastructure Limited’s (RInfra) integrated power business in the Mumbai area. The deal, worth INR188 billion, comprises business valued at INR121.01 billion, regulatory assets of INR11.50 billion, another INR50 billion worth of regulatory assets under approval, and INR5.50 billion worth of net working capital on closing. The deal was concluded in August 2018 following the signing of a definitive binding agreement for the stake sale in December 2017. A consortium of public sector undertaking banks is reported to have lent INR85 billion to ATL for the deal. Earlier, ATL indicated that it had arranged for a 15-year loan at an interest rate of 9.5 per cent. RInfra’s Mumbai power business, with annual revenues of INR75 billion, distributes power to nearly 3 million residential, industrial and commercial consumers in the city’s suburbs.

 

Sekura Energy-Essel Infraprojects SPVs: In October 2018, Sekura Energy Limited, which is a unit of Edelweiss Infrastructure Yield Plus fund focused on investing in India’s power sector, announced its plans to acquire four power transmission special purpose vehicles (SPVs) from Essel Infraprojects Limited, at an estimated cost of INR60 billion. These include two SPVs with operational assets, namely, Darbhanga-Motihari Transmission Limited and NRSS XXXI (B) Transmission Limited, and two SPVs whose assets will become operational in 2020, namely,  Warora-Kurnool Transmission Limited and NRSS XXXVI Transmission Limited. The latter two SPVs will be acquired once they are operational. The completion of the transaction is contingent upon the fulfilment of lender approvals, and certain customary regulatory and closing conditions. The four SPVs together comprise an asset portfolio of around 1,480 km of 400 kV and 765 kV lines and 4,500 MVA of substation capacity.

 

IndiGrid-PTCL and SPGVL SPVs: In September 2018, IndiGrid, India’s first infrastructure investment trust (InvIT) in the power sector, completed the acquisition of the transmission assets of Patran Transmission Company Limited (PTCL) from Techno Electric & Engineering Company Limited at an estimated value of INR2.32 billion. The company had signed a definitive agreement with Techno Electric for the acquisition in February 2018. PTCL’s assets comprise a 400/220 kV substation with 14 bays in Patran, and a line-in-line-out of both circuits of the 400 kV Patiala–Kaithal double-circuit triple Snowbird line, also at Patran. Separately, IndiGrid completed the acquisition of three power transmission assets—RAPP Transmission Company Limited, Purulia & Kharagpur Transmission Company Limited and Maheshwaram Transmission Limited—from Sterlite Power Grid Ventures Limited (SPGVL) (which is the sponsor of IndiGrid) at an estimated value of INR14.90 billion. With this, IndiGrid has completed the first set of acquisitions to reach its goal of owning assets worth INR300 billion by 2022.

 

Europe

KfW-50Hertz: In August 2018, KfW acquired Belgium-based TSO Elia System Operator SA’s 20 per cent stake in Germany’s 50Hertz. Earlier in April 2018, Elia acquired this stake in 50Hertz from Australia-based investment manager IFM Global Infrastructure Fund for about EUR989 million, by exercising its pre-emption right on the 20 per cent stake in the holding company of 50Hertz, Eurogrid International. At that time, Elia increased its stake in 50Hertz to 80 per cent from 60 per cent. IFM continues to hold the remaining 20 per cent share in Eurogrid. Immediately after buying the stake from IFM, Elia sold it to KfW at the same financial conditions. For the German government, KfW’s investment is only a temporary measure made for security reasons. This move allowed Germany to block the attempts of China’s State Grid Corporation of China (SGCC) to buy into the TSO. Elia financed the acquisition of 20 per cent of Eurogrid through the issue of long-term debt instruments, including EUR700 million of hybrid bonds and EUR300 million of unsubordinated senior bonds.

 

CSG-Encevo: In October 2018, China's CSG completed the acquisition of a 24.92 per cent equity stake held by Ardian, a world-leading private investment house, in Luxembourg’s energy company Encevo S.A. Encevo operates in several energy business fields through its two subsidiaries—Creos Luxembourg and Enovos Luxembourg. Creos engages in transmission and distribution of electricity and gas while Enovos Luxembourg is responsible for the sale of energy to a diversified portfolio of clients in Luxembourg and Germany. The utility currently operates more than 10,150 km of electricity lines and more than 3,700 km of gas pipelines in Europe.

 

Equipment deals

Hitachi-ABB Power Grid Division: Hitachi Limited reached an agreement to acquire an 80.1 per cent stake in ABB’s Power Grid division by the first half of 2020. The former has also entered into a purchase option to acquire a 19.9 per cent stake in the latter, to make Power Grid Division its wholly owned subsidiary. The venture would be headquartered in Switzerland with Hitachi retaining the management team to ensure business continuity. The total enterprise value of ABB’s Power Grid division has been estimated at USD11 billion. The purchase price has been estimated at USD6.4 billion, after deducting debt. The final price of the deal will be decided after customary adjustments in net working capital and net debt at the time of the closing of the deal. Post the disinvestment, ABB plans to return USD7.8 billion to investors through a buyback or other measures. Its sale will allow ABB to concentrate on robotics and automation. Meanwhile, the deal will enable Hitachi to combine ABB’s advanced digital grid solutions with its own digital technology, and offer innovative energy solutions on a global scale.

 

Siemens-Coelme Group: In December 2018, Germany-based Siemens entered into an agreement to acquire a non-controlling minority shareholding of 25 per cent in Coelme Group, an Italy-based subsidiary of US-based Southern States LCC—one of the leading manufacturers of high voltage disconnect switches. Coelme Group will continue to operate as a standalone company, independent of Siemens, but both will have a business relationship based on the arm’s length principle. Closure of the transaction, expected in the first half of 2019, is subject to approval by regulatory authorities.

 

ABB-GE Industrial Solutions: In June 2018, ABB completed the acquisition of the US-based General Electric’s (GE) global electrification solutions business—GE Industrial Solutions (GEIS)—for USD2.6 billion. The deal will help ABB strengthen its position in the electrification business segment and further expand its access to the North American market. ABB is expected to gain annual cost synergies of approximately USD200 million during the fifth year. ABB plans to integrate GEIS into its Electrification Products (EP) division and rename it Electrification Products Industrial Solutions (EPIS).

 

BHI-D&D Power: In June 2018, US-based Bartlett Holdings, Inc. (BHI)—a portfolio company of AeroEquity Industrial Partners, LP—announced the acquisition of New York-based D&D Power Inc. BHI is a specialty and maintenance services company, engaged in providing the onsite services required to support the daily operations, routine maintenance and capital investment requirements of nuclear, fossil and renewable power facilities, as well as government decommissioning projects. D&D Power is an electricity contractor company operating in the Northeast and Southern US, specialising in the installation, repair and maintenance of power lines, with a portfolio of 69 kV to 500 kV transmission projects. The deal will help BHI expand their transmission and distribution service portfolio.

 

Prysmian Group-General Cable: In June 2018, Italy’s Prysmian Group completed its acquisition of US-based General Cable. The former signed the definitive agreement to acquire the latter at the end of 2017, in a deal valued at USD3 billion, including debt and certain liabilities. The transaction was approved by the management boards of the two companies to close by the third quarter of 2018. Prysmian acquired all the outstanding shares of General Cable common stock for USD30 per share in cash. With this, General Cable has become a privately held company, and therefore its shares will no longer be listed on the New York Stock Exchange or any other public market. The deal will allow Prysmian to attain a better position to meet new opportunities and challenges in the global cable industry. Both companies address the energy and communications markets and receive a similar proportion of revenue from telecom cables.

 

 

Table 1: M&A Deals in Power Transmission Utilities

M&A deals

Country of acquirer and acquired

% stake acquisition

Deal value

Status of deal

North America

Dominion Energy-SCANA

US

100.00

USD14.6 billion

Completed

Oncor Electric-InfraREIT

US

100.00

USD1.28 billion

Announced

Agro Infrastructure-Hudson Transmission Partners

US

NA

NA

Announced

GridLiance-EEI

US

100.00

NA

Announced

GridLiance-PEC

US

100.00

NA

Announced

South Central MCN-Nixa’s Transmission Assets

US

100.00

NA

Completed

First Nations Group-Hydro One

Canada

2.40

CAD260 million

Completed

Hydro One-Avista

US and Canada

100.00

USD5.3 billion

Stalled

Latin America 

TAESA-Amber Energia SPEs

Brazil

100.00

BRL942.5 million

Announced

Chilquinta Energía-CTNG

US and Chile

100.00

USD225.5 million

Completed

Red Eléctrica Chile- Centinela Transmisión

Spain and Chile

100.00

USD117.2 million

Completed

Celsia-EPSA

Colombia

11.00

COP737,994 million

Completed

CSG-Transelec

China and Chile

27.70

USD1.3 billion

Completed

Europe 

KfW-50Hertz

Germany

20.00

EUR989 million

Completed

CSG-Encevo

China and Luxembourg

24.92

-

Completed

Asia

ATL-RInfra Mumbai

India

100.00

INR188 billion

Completed

IndiGrid-PTCL & SPGVL SPVs

India

100.00

INR2.32 billion

Completed

Sekura Energy-Essel Infraprojects SPVs

India

100.00

INR60 billion

Announced

Source: Global Transmission Research

 

Table 2: M&A Deals in Power Transmission Equipment

M&A deals

Country of acquirer and acquired

% stake acquisition

Deal value (USD billion)

Status of deal

Hitachi-ABB Power Grid Division

Japan and Switzerland

80.10*

6.4

Announced (closure expected by mid-2020)

Siemens-Coelme Group

Germany and Italy

25.00

NA

Announced (closure expected by mid-2019)

ABB-GE Industrial Solutions

Switzerland and US

100.00

2.6

Completed

BHI-D&D Power

US

100.00

NA

Completed

Prysmian Group-General Cable

Italy and US

100.00

3.0

Completed

*With a purchase option for 19.9%

Source: Global Transmission Research