Iberdrola is hitting problems with its acquisition of PNM in the US

Avangrid hits problems in USIberdrola's Avangrid hits problems with US buy

Renta 4 | According to the press, 3 of the 5 members of the public regulation commission of New Mexico have agreed with the examiner’s conclusion recommending not to accept the deal, because the potential damages outweigh the benefits. Concern has been expressed over possible conflicts of interest, ethical issues and Avangrid’s poor track record with the public services in the north east of the country. Avangrid is Iberdrola’s subsidiary in the US.

The definitive decision will be known as of December 8th. This situation caused sharp declines in Iberdrola (IBE)’s share price yesterday, which underperformed the sector. Let’s see what happens, but there is still the possibility that the case is re-opened to consider additional modifications to the agreement. The examiner of the hearing offered a potential alternative way for the commission to approve the agreement, based on certain recommended modifications. This alternative route provides a viable way of obtaining approval and closing the transaction as planned.

We recall that only one of the 24 institutions involved in this process has expressed a negative view of the deal. The others have been in favour or have not opposed it. In the event of the final decision being against the transaction, there is the possibility of an appeal being lodged with the Supreme Court on the part of Iberdrola.

The acquisition of PNM will mean an initial investment of 8 billion dollars. And in the event it were not to go ahead, this would scuttle one of the group’s growth paths. That said, we believe Iberdrola has the capacity to absorb growth via other channels and meet its long-term objectives. However, there is a certain risk that this does not happen in the short-term.