Algonquin Power & Utilities Corp. Agrees to Sell Renewable Energy Business to LS Power for up to $2.5 Billion

Rhea-AI Summary

Algonquin Power & Utilities Corp. (AQN) has agreed to sell its renewable energy business (excluding hydro) to LS Power for up to $2.5 billion. The transaction includes $2.28 billion in cash at closing and up to $220 million in earn-out payments. This strategic move aims to transform AQN into a pure-play regulated utility, strengthen its balance sheet, and enhance earnings quality.

The deal is expected to close in Q4 2024 or Q1 2025, subject to regulatory approvals. AQN anticipates receiving approximately $1.6 billion in net cash proceeds after adjustments. The company's board unanimously approved the transaction, which aligns with AQN's objective to create long-term value for customers and shareholders.

Positive

• Sale of renewable energy business for up to $2.5 billion, representing a compelling value
• Transformation into a pure-play regulated utility, potentially improving earnings stability
• Expected net cash proceeds of $1.6 billion to strengthen the balance sheet
• Unanimous board approval for the transaction

Negative

• Divestment of a major business segment, potentially reducing revenue streams
• Transaction subject to regulatory approvals, which may delay or affect closing
• Potential loss of diversification benefits from the renewable energy business

Insights

Financial Analyst

This transaction marks a significant strategic shift for Algonquin Power & Utilities Corp. (AQN). The $2.5 billion sale of its renewable energy business (excluding hydro) to LS Power is a transformative move towards becoming a pure-play regulated utility. This decision will likely have substantial implications for AQN's financial structure and future growth trajectory.

The deal's structure, with $2.28 billion in cash at closing and up to $220 million in potential earn-outs, provides AQN with immediate capital while retaining some upside potential. The expected $1.6 billion in net proceeds will significantly strengthen AQN's balance sheet, potentially reducing debt and improving its financial flexibility. This could lead to a lower cost of capital and improved credit metrics, which are important for utility companies.

Investors should closely monitor how management deploys this capital, as it will be pivotal in shaping AQN's future growth and profitability as a pure-play regulated utility.

Utility Industry Expert

AQN's strategic pivot to a pure-play regulated utility model is a noteworthy industry trend. This move aligns with the increasing focus on stable, predictable earnings in the utility sector. By divesting its renewable energy assets, AQN is streamlining its operations and potentially reducing earnings volatility.

The transaction's timing is crucial, considering the current high valuations in the renewable energy sector. AQN seems to be capitalizing on this favorable market condition to unlock value for shareholders. However, this also means the company is exiting a high-growth sector, which could impact its long-term growth prospects.

The success of this strategy will largely depend on AQN's ability to efficiently allocate capital within its regulated business and navigate the regulatory landscape effectively. Investors should watch for potential rate case outcomes and regulatory developments in AQN's key markets, as these will be critical drivers of future performance.

Market Research Analyst

This transaction reflects a broader market trend of utility companies refocusing on their core regulated businesses. The move could potentially lead to a re-rating of AQN's stock as it transitions to a pure-play regulated utility model, which typically commands higher valuation multiples due to earnings stability.

However, investors should consider the trade-off between stability and growth. While regulated utilities offer predictable cash flows, they often have growth potential compared to renewable energy businesses. The market's reaction will likely depend on how effectively AQN can articulate its growth strategy within the regulated utility space.

The transaction's impact on AQN's dividend policy will be a key area to watch. Regulated utilities are often favored for their stable dividends and any changes to the payout ratio or dividend growth rate could significantly influence investor sentiment. Additionally, the market will be keen to see how AQN plans to replace the earnings contribution from its divested renewable energy assets.

Transaction Unlocks AQN's Value as a Pure-Play Regulated Utility

Proceeds Expected to Recapitalize Balance Sheet and Position Company for Future Growth

Company to Hold Second Quarter Earnings Conference Call at 8:30 am E.T.

OAKVILLE, ON, Aug. 9, 2024 /PRNewswire/ - Algonquin Power & Utilities Corp. (TSX/NYSE: AQN) ("AQN" or the "Company") announced today that it has entered into a definitive agreement to sell its renewable energy business (excluding hydro) to a wholly-owned subsidiary of LS Power (the "Buyer") for total consideration of up to $2.5 billion.  All amounts are shown in United States Dollars.

"We are pleased to announce this important transaction with LS Power, which is the result of a highly competitive strategic sale process," said Chris Huskilson, CEO of AQN. "This major milestone, coupled with our previously announced agreement to support the sale of our Atlantica shares, delivers on our plan to transform AQN into a pure play regulated utility, optimize our regulated business activities, strengthen our balance sheet, and enhance our quality of earnings. We are confident that our path towards a pure play regulated utility supports our objective to create long term value for our customers and shareholders."

Mr. Huskilson concluded, "The renewable energy business is a compelling and competitive business with scale and strong assets. That strength is a direct result of our employees' hard work and dedication over the last three-plus decades, and I want to thank them for being an integral part of that effort. AQN and LS Power will work closely together to ensure a smooth transition."

Transaction Details, Approvals and Timing to Close

On August 9, 2024, the Company entered into an agreement to sell the renewable energy business (excluding hydro) to the Buyer for total consideration of up to $2.5 billion excluding debt, consisting of $2.28 billion of cash at closing (subject to certain closing adjustments) and up to $220 million of cash pursuant to an earn out agreement relating to certain wind assets (the "Earn Out"). The purchase price represents a compelling value relative to other precedent transactions. The transaction was unanimously approved by the Company's board of directors.

The sale is subject to the satisfaction of customary closing conditions, including the approval of the U.S. Federal Energy Regulatory Commission and approval under applicable competition laws. The Company expects the transaction to close in the fourth quarter of 2024 or the first quarter of 2025 and to receive estimated cash proceeds of approximately $1.6 billion (excluding the Earn Out) after repaying construction financing, and net of taxes, transaction fees and other closing adjustments.

J.P. Morgan served as the exclusive financial advisor to AQN in connection with the transaction.

Second Quarter Financial Results

In a separate release issued today, the Company announced financial results for the second quarter ended June 30, 2024. The earnings conference call will be held at 8:30 a.m. Eastern Time on Friday, August 9, 2024, by Chief Executive Officer, Chris Huskilson, and Chief Financial Officer, Darren Myers.

Date:	Friday, August 9, 2024
Time:	8:30 a.m. ET
Conference Call:	Toll Free Dial-In Number	1 (800) 715-9871
	Toll Dial-In Number	1 (647) 932-3411
	Conference ID	9608227
Webcast:	https://edge.media-server.com/mmc/p/q3hkjcp5
	Presentation also available at:  www.algonquinpower.com

About Algonquin Power & Utilities Corp. and Liberty

Algonquin Power & Utilities Corp., parent company of Liberty, is a diversified international generation, transmission, and distribution utility with approximately $18 billion of total assets. AQN is committed to providing safe, secure, reliable, cost-effective, and sustainable energy and water solutions through its portfolio of generation, transmission, and distribution utility investments to over one million customer connections, largely in the United States and Canada. In addition, AQN owns, operates, and/or has net interests in over 4 GW of installed renewable energy capacity. AQN's common shares, preferred shares, Series A, and preferred shares, Series D are listed on the Toronto Stock Exchange under the symbols AQN, AQN.PR.A, and AQN.PR.D, respectively. AQN's common shares and Series 2019-A subordinated notes are listed on the New York Stock Exchange under the symbols AQN and AQNB, respectively.

Visit AQN at www.algonquinpower.com and follow us on X.com @AQN_Utilities.

Caution Regarding Forward-Looking Information

Certain statements included in this news release constitute ''forward-looking information'' within the meaning of applicable securities laws in each of the provinces and territories of Canada and the respective policies, regulations and rules under such laws and ''forward-looking statements'' within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 (collectively, ''forward-looking statements"). The words "will" and "expects" (and grammatical variations of such terms) and similar expressions are often intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Specific forward-looking statements in this news release include, but are not limited to, statements regarding the sale of the Company's renewable energy business (excluding hydro), including the expected timing, proceeds and impact on the Company.  These statements are based on factors or assumptions that were applied in drawing a conclusion or making a forecast or projection, including assumptions based on historical trends, current conditions and expected future developments. Since forward-looking statements relate to future events and conditions, by their very nature they require making assumptions and involve inherent risks and uncertainties. AQN cautions that although it is believed that the assumptions are reasonable in the circumstances, these risks and uncertainties give rise to the possibility that actual results may differ materially from the expectations set out in the forward-looking statements. There can be no assurance that the sale of the Company's renewable energy business will occur on the currently contemplated terms or otherwise, or that any of the intended benefits and aims of such transaction will be realized. Forward-looking statements contained herein are provided for the purposes of assisting in understanding the Company and its business, operations, risks, financial performance, financial position and cash flows as at and for the periods indicated and to present information about management's current expectations and plans relating to the future and such information may not be appropriate for other purposes. Material risk factors and assumptions include those set out in AQN's Annual Information Form and Annual Management Discussion and Analysis for the year ended December 31, 2023, and Management Discussion and Analysis for the three and six months ended June 30, 2024, each of which is or will be available on SEDAR+ and EDGAR.  Given these risks, undue reliance should not be placed on these forward-looking statements, which apply only as of their dates. Other than as specifically required by law, AQN undertakes no obligation to update any forward-looking statements to reflect new information, subsequent or otherwise.

 

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SOURCE Algonquin Power & Utilities Corp.

FAQ

What is the value of Algonquin Power & Utilities Corp.'s (AQN) renewable energy business sale?

Algonquin Power & Utilities Corp. (AQN) has agreed to sell its renewable energy business to LS Power for up to $2.5 billion, consisting of $2.28 billion in cash at closing and up to $220 million in earn-out payments.

When is the expected closing date for AQN's renewable energy business sale?

The transaction is expected to close in the fourth quarter of 2024 or the first quarter of 2025, subject to customary closing conditions and regulatory approvals.

How much net cash proceeds does AQN expect from the renewable energy business sale?

AQN anticipates receiving approximately $1.6 billion in net cash proceeds after repaying construction financing, taxes, transaction fees, and other closing adjustments.

What is the strategic rationale behind AQN's decision to sell its renewable energy business?

The sale is part of AQN's strategy to transform into a pure-play regulated utility, optimize its regulated business activities, strengthen its balance sheet, and enhance the quality of its earnings.