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 Iberdrola, a world leader in wind turbines, joins other European
companies, including Germany's Siemens which has agreed to buy U.S.
turbine maker Dresser-Rand, hoping to grow through purchases outside
sluggish home markets.
Iberdrola's earnings suffered in Europe's economic crisis and from
energy reforms in Spain, where new power generation taxes and
renewable cuts dented profits.
It has already mandated Morgan Stanley to explore the sale of a
minority stake in its Spanish distribution business as part of its
boldest move to boost earnings since 2011, a strategy aimed at
cutting exposure to Spain and investing abroad.
"Iberdrola is looking for a purchase in the United States. They're
not going to sell anything unless they have an adequate acquisition
target," said one financial source who asked to remain anonymous.
Iberdrola, which has been mentioned as a possible suitor of both
Louisiana's electricity supplier Cleco Corp's <CNL.N> and Oncor, the
power distribution unit of Texas's biggest power company, declined
to comment.
The JPMorgan mandate is for a sale of minority stakes in several
renewable energy assets such as mature wind farms or solar plants
that could be worth about 2 billion euros, two sources with
knowledge of the matter said. JPMorgan declined to comment.
Iberdrola has assets capable of producing 14,400 megawatts (MW)of
renewable energy across the world, with 5,700 MW in Spain and 5,457
MW in the United States.
The sale of the Spanish distribution business that Morgan Stanley is
exploring could raise about 3 billion euros, said UBS analyst
Alberto Gandolfi in a note to clients. Two sources with direct
knowledge of this process confirmed this valuation.
"They are 'on & off' mandates that Iberdrola activates or
deactivates according to its needs," another source said.
The two sales could free up funds for a major U.S. acquisition, a
sign that confidence has returned at the company after it was forced
to put an international expansion drive on hold in 2011 during the
euro zone debt crisis which made it harder for Spanish companies to
borrow.
Iberdrola would like to add more electricity distribution assets to
its U.S. portfolio, two of the sources said. Such assets are
attractive because they offer a recurring income and their
performance is less dependent on energy prices moves.
Spain's energy reforms which aimed to cut a massive tariff shortfall
in the regulated power system have added to the company's pain,
wiping 1.4 billion euros from Iberdrola's earnings since 2011. It
has 26 billion euros in debts.
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Funding an acquisition through sales would allow the company, based
in northern Bilbao, to avoid borrowing more money and diluting its
share capital by bringing in new shareholders.
U.S. PREDATOR
Iberdrola has ruled out bidding for Cleco and the size of Oncor,
valued at $20 billion including debt, could be hard to digest. One
option could be to buy some of Oncor's assets.
"If (an acquisition) were done, it'd be a small deal... $20 billion
is an outrageous sum," said one source close to Iberdrola, with a
market value of about 35 billion euros. "Yet (Oncor) appears the
type of business that would fit Iberdrola's asset rotation strategy:
fully regulated, in a country with a visible framework, and which
could feature good organic growth," UBS said in a note to clients.
During 2010-13, Oncor delivered core earnings growth of 21.5 percent
while Iberdrola's Ebitda EPS fell 5 percent, largely due to the
impact of Spanish regulatory measures.
Angry over the painful reforms, Iberdrola Chairman Ignacio Sanchez
Galan has vowed to slash domestic investments and boost exposure
abroad. The company already owns Scottish Power and U.S. Energy
East, bought in 2006 and 2007, before Spain's financial crisis.
Still, a large chunk of its earnings before interest, taxes,
depreciation and amortization (EBITDA) continue to come from Spain,
including 71 percent from its generation business, 46 percent from
its renewable arm and 42 percent from power grids.
(Additional reporting by Sophie Sassard and Freya Berry in London;
Writing by Tracy Rucinski; Editing by Julien Toyer and Anna Willard)
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