Shares in PNM Resources are surging almost 8% in Wednesday’s pre-market trading after the company agreed to a $8.3 billion merger deal with Iberdrola’s Avangrid to create the third-largest US renewable energy operator.
Under the terms of the agreement, PNM Resources (PNM) shareholders will receive $50.30 in cash for each share of the company’s common stock held, representing an equity value of about $4.3 billion. The $8.3 billion enterprise value includes net debt plus other adjustments of about $4 billion. The proposed deal implies a 19.3% premium to PNM’s 30-day volume weighted average price (VWAP) as of Oct. 20. The combined company will have more than $40 billion in assets, with about $2.5 billion in EBITDA and a net profit of $850 million.
“We are excited to be part of this transaction that provides so many benefits to our customers, communities, employees and shareholders,” said PNM CEO Pat Vincent-Collawn. “Our combined companies provide greater opportunities to invest in the infrastructure and new technologies that will help us navigate our transition to clean energy while maintaining our commitments to our local teams and communities.”
Avangrid is a diversified energy and utility company with operations in 24 US states. The merged company will manage more than 4.1 million supply points, a regulated asset base (RAB) of $14.4 billion, more than 168,000 km of networks and approximately 10.9 GW of installed capacity.
The transaction, which has been unanimously approved by both companies’ Boards of Directors, is expected to close between October and December 2021.
PNM shares have gained 15% over the past month, trimming this year’s loss to 9.8%. (See PNM stock analysis on TipRanks)
Citigroup analyst Ryan Levine last week, initiated coverage of PNM with a Buy rating and $51 price target (12% upside potential). Levine believes that the regulated New Mexico and Texas utility is well-positioned to benefit from the upcoming elections, potential tax reform, the favorable Texas regulatory environment and decarbonization opportunities.
“The upcoming election also has potential to lead to an improved New Mexico regulatory environment,” the analyst wrote in a note to investors.
The rest of the Street is cautiously optimistic on the stock. The Moderate Buy analyst consensus breaks down into 4 Buys versus 2 Holds. The $48.33 average analyst price target implies 5.7% upside potential over the coming year.
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