Merger Date of PNM Resources (PNM) & AVANGRID Gets Extended

PNM Resources PNM signs an amendment of the merger agreement with AVANGRID AGR for pushing the closure date to Apr 20, 2023, which is subject to a three-month extension by the mutual consent of the companies, based on various closing conditions. The merger can be terminated by both AGR and PNM under certain circumstances, including if the same is not completed within the stipulated time.

The merger deal was announced in October 2020 and was expected to get completed in the fourth quarter of 2021, post the approval of the New Mexico Public Regulation Commission. However, the order for the approval of the merger got rejected, which would have otherwise fetched more than $300 million worth benefits for New Mexico customers and communities.

New Mexico utility regulators felt that the deal's risks were more than the benefits to state ratepayers and consequently, rejected the proposed $8-billion acquisition.

Motive Behind the Move

PNM Resources’ long-standing expertise in fulfilling environmental regulations and its focus on developing cost-effective generation units to provide reliable and affordable power prompted AGR to defer the transaction instead of cancelling it. The acquisition will aid AVANGRID’s expansion of renewables business in the Southwest. Also, the scope and diversity of the combined business will augment its ability to invest in energy efficiency and new technologies.

The combined entity will have an improved credit profile, greater financial flexibility and lower cost of capital. Given that AVANGRID's parent company is Iberdrola, S.A., funding of growth projects won’t be a concern. The deal will create a leading U.S. regulated utility and renewable energy platform, which seems lucrative to both companies.

Clean Energy Goals

The US government announced plans to generate carbon-free electricity by 2035 and reach net-zero emissions within 2050.The directive for utilities to cut down on emissions will help lower the release of harmful greenhouse gases. Companies from the Zacks Utilities sector were already setting targets to reduce their emissions much before the current administration unveiled its plans.

PNM Resources is focused on exiting coal-fired generation by 2024 and intends to have an emissions-free generating portfolio by 2040. This will add cleaner energy sources to its production portfolio, thus becoming carbon neutral before 2045. New Mexico Legislation passed 100% carbon-free electricity target. In sync with the same, PNM will target an early exit at the end of 2024 from the Four Corners Power Plant. It expects an approval for the early retirement of the same in the fourth quarter of 2021.

AVANGRID is the third largest wind and solar operator in the United States, with operations in 24 states having nearly 70 such facilities. AGR plans to create a clean generation portfolio with 90% renewables and the Scope 1 carbon neutrality goal by 2035. Also, it aims to reduce the Scope 1 greenhouse gas emissions by 35% within 2025 from the 2015 level. As of the third quarter of 2021, it invested nearly $616 million in renewables.

Along with PNM and AGR, other electric utilities like CMS Energy Corporation CMS and Algonquin Power & Utilities Corp. AQN are adopting measures to meet clean energy targets.

In December, CMS Energy’s subsidiary Consumer Energy inked a deal with Swisslane Farms to build a biodigester facility in Michigan, which will produce renewable natural gas. The move will enable CMS to inch closer to its goal of achieving net-zero methane emissions within2030.

CMS Energy expects to make strategic investments to expand its renewable portfolio and spend $2.7 billion on renewable, including investments in wind, solar and hydroelectric generation resources during the 2021-2025 period.

Algonquin has plans to invest $12.4 billion during the 2022-2026 time frame to strengthen its infrastructure and add renewable power to its generation portfolio.

AQN’s renewable generation capacity represents more than 60% of its total generation capacity. It aims to achieve 75% renewable generation capacity by the end of 2023. Algonquin plans to become net zero by 2050.

Zacks Rank & Price Performance

The stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In the past six months, shares of PNM have lost 6.7% against the industry’s 9% growth.

Image Source: Zacks Investment Research

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