Algonquin Power & Utilities Corp. Announces Its Support for Energy Capital Partners'; Proposed Acquisition of Atlantica

Rhea-AI Summary

Algonquin Power & Utilities Corp. (TSX: AQN) (NYSE: AQN) announces a support agreement with Energy Capital Partners and Atlantica Sustainable Infrastructure plc (NASDAQ: AY). AQN's subsidiary Liberty, holding 42.2% of Atlantica shares, will vote in favor of Bidco's acquisition of Atlantica for $22.00 per share, a transaction valuing Atlantica at approximately $2,555 million. This represents an 18.9% premium on Atlantica's closing price on April 22, 2024. Proceeds from AQN's $1,077 million stake will help reduce debt and focus on becoming a pure-play regulated utility. The transaction, subject to several approvals, is expected to close by late 2024 or early 2025.

Positive

• Sale proceeds of $1,077 million from Atlantica stake to reduce debt.
• Transaction price of $22.00 per share is an 18.9% premium over the April 22, 2024 closing price.
• Transaction valued Atlantica at approximately $2,555 million.
• Strategic move aligns AQN with its goal to become a pure-play regulated utility.

Negative

• Transaction closure depends on multiple regulatory and shareholder approvals.
• Potential delays in transaction finalization, expected by late 2024 or early 2025.

Insights

Financial Analyst

The proposed acquisition of Atlantica Sustainable Infrastructure plc by Energy Capital Partners, backed by Algonquin Power & Utilities Corp., positions the latter to advance its strategic transformation into a pure-play regulated utility. By agreeing to sell its 42.2% stake in Atlantica at $22.00 per share, AQN is not only securing a significant cash inflow valued at $1,077 million, but also achieving a notable 18.9% premium over Atlantica's recent trading price. This premium underscores the lucrative nature of the deal for AQN.

This transaction is instrumental for AQN's debt reduction strategy and balance sheet recapitalization, which are critical for its transition to a regulated utility model. Investors should note that shifting to regulated activities usually results in more stable revenue streams and reduced operational risks, benefiting long-term financial stability. However, the short-term impact may involve transitional costs and restructuring expenses.

Furthermore, the scheme of arrangement and necessary regulatory approvals, including the Hart-Scott-Rodino Act clearance, present potential hurdles that could delay the transaction. Investors should remain aware of these regulatory risks and the extended timeframe expected for the transaction completion, projected between the fourth quarter of 2024 and the early first quarter of 2025.

Market Research Analyst

The transaction's broader market implications are significant, particularly in the sustainable infrastructure sector. The acquisition price reflects a substantial premium over both recent and historical trading prices of Atlantica, suggesting a robust demand for assets in sustainable energy. This move can be interpreted as a strategic attempt by Energy Capital Partners to consolidate its market position in renewable infrastructure, signaling positive market sentiment towards sustainable investments.

For retail investors, understanding the underlying trends is essential. The increasing valuation of Atlantica, driven by its renewable energy portfolio, indicates a growing investor appetite for sustainable and environmentally friendly investments. This trend aligns with the global shift towards renewable energy and decarbonization efforts, which are likely to continue driving valuations in this sector.

However, the transaction's success hinges on multiple regulatory approvals, which could introduce uncertainties. Navigating these complex legal and regulatory landscapes could extend the transaction timeline and potentially impact its final terms. Investors should monitor these developments closely to gauge their potential impact on the market and their investments.

Legal Expert

The completion of this transaction under a scheme of arrangement pursuant to the U.K. Companies Act 2006 involves several layers of legal considerations. The requirement for shareholder approval of the Scheme and the subsequent sanctioning by the High Court of Justice of England and Wales highlight the importance of compliance with U.K. corporate law.

Additionally, regulatory approvals in various jurisdictions, including clearance under the Hart-Scott-Rodino Act and from the Committee on Foreign Investment in the United States (CFIUS), add further complexity. These regulatory bodies scrutinize transactions for potential antitrust issues and national security concerns, respectively. The necessity for these approvals indicates the transaction's cross-border nature and the regulatory rigor it must endure, which may affect the timeline and finalization of the deal.

Investors should remain vigilant about these regulatory processes, as delays or denials could alter the transaction's dynamics. While the projected timeline suggests a closing date in late 2024 or early 2025, any regulatory setback could extend this period, influencing investment strategies and market perceptions.

AQN Makes Progress Towards Strategic Transformation to Pure-Play Regulated Utility

OAKVILLE, ON, May 28, 2024 /PRNewswire/ - Algonquin Power & Utilities Corp. (TSX: AQN) (NYSE: AQN) ("AQN" or the "Company") today announced it has entered into a support agreement (the "Support Agreement") with a private limited company ("Bidco"), which is controlled by Energy Capital Partners, and Atlantica Sustainable Infrastructure plc (NASDAQ: AY) ("Atlantica"). AQN and its subsidiary Liberty (AY Holdings) B.V., which holds approximately 42.2% of the shares of Atlantica, have agreed, subject to the terms of the Support Agreement, to cause such shares to be voted in favour of a transaction agreement (the "Transaction Agreement") separately announced today by Atlantica and Bidco.

Bidco has agreed, subject to the terms of the Transaction Agreement, to acquire 100% of the shares of Atlantica for $22.00 per share in cash (the "Transaction"). The purchase price represents an 18.9% premium to Atlantica's closing share price on April 22, 2024, the last trading day prior to the emergence of market rumours regarding a potential acquisition of Atlantica. Further, the purchase price represents a 21.8% premium to the 30-day volume weighted average trading price as of April 22, 2024. The Transaction values Atlantica at an equity value of approximately $2,555 million, valuing AQN's 42.2% stake at approximately $1,077 million. AQN expects the proceeds will be used to help reduce debt and recapitalize its balance sheet as part of its ongoing strategic transition to a pure play regulated utility. All dollar references are to U.S. dollars.

Chris Huskilson, CEO of AQN, said, "One of my first priorities on being appointed Interim CEO was optimizing the value of our investment in Atlantica. Supporting this agreement helps realize that goal. We are pleased that Atlantica's strategic review has resulted in a constructive conclusion. The exit of our financial investment in Atlantica is another step forward in our strategic transition as we simplify our structure and focus on becoming a pure-play regulated utility."

Shareholder and Regulatory Approvals / Transaction Details

The Transaction is expected to be completed pursuant to a scheme of arrangement (the "Scheme") under the U.K. Companies Act 2006. The Transaction is subject to, among other conditions, approval by Atlantica's shareholders of the Scheme, sanction of the Transaction by the High Court of Justice of England and Wales, and regulatory approvals in different jurisdictions, including clearance under the Hart-Scott-Rodino Act, by the Committee on Foreign Investment in the United States and by the Federal Energy Regulatory Commission in the United States.

Atlantica expects the Transaction to close in the fourth quarter of 2024 or early first quarter of 2025.

About Algonquin Power & Utilities Corp.

Algonquin Power & Utilities Corp. 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, Series 2019-A subordinated notes and equity units are listed on the New York Stock Exchange under the symbols AQN, AQNB, and AQNU, respectively.

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

Financial and Legal Advisors

J.P. Morgan Securities LLC was the exclusive financial advisor to AQN and Weil, Gotshal & Manges LLP acted as legal advisor to AQN.

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", "should" 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 Transaction and related expectations regarding the satisfaction of closing conditions and regulatory approvals; the expected timing for closing of the Transaction; the Company's expected use of proceeds from the Transaction; and the impact and expected benefits of the Transaction to 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 regarding the ability to complete the Transaction on the contemplated terms and 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 Transaction will be completed. 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 Interim Management Discussion and Analysis for the three months ended March 31, 2024, each of which is 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 AQN's role in the acquisition of Atlantica?

AQN has agreed to support Energy Capital Partners' acquisition of Atlantica, with its subsidiary Liberty voting in favor of the transaction.

How much is Atlantica being acquired for?

Atlantica is being acquired for $22.00 per share, valuing the company at approximately $2,555 million.

What percentage premium does the acquisition price represent?

The acquisition price represents an 18.9% premium to Atlantica's closing share price on April 22, 2024.

How much is AQN's stake in Atlantica worth?

AQN's 42.2% stake in Atlantica is valued at approximately $1,077 million.

When is the Atlantica acquisition expected to close?

The transaction is expected to close in the fourth quarter of 2024 or early first quarter of 2025.

What will AQN do with the proceeds from the sale of its Atlantica stake?

AQN plans to use the proceeds to reduce debt and focus on its strategic transition to a pure-play regulated utility.

What approvals are needed for the Atlantica acquisition to go through?

The acquisition requires approval by Atlantica's shareholders, sanction by the High Court of Justice in England and Wales, and various regulatory approvals.