PNM Resources PNM and AVANGRID, Inc. AGR have mutually agreed to revise their merger agreement and extend it to Dec 31, 2023. If both companies agree, the deal may be extended by another three months. While the merger is likely to create a very strong clean-energy company, the ongoing delay can lower the desired returns for the companies.
Background of the Merger
Initially announced in October 2020, the merger was expected to get completed in the fourth quarter of 2021, subject to approval by the New Mexico Public Regulation Commission (“NMPRC”). However, following rejection by NMPRC, the companies filed an appeal to the New Mexico Supreme Court against the regulatory authority’s decision.
In March 2023, PNM Resources, AVANGRID and NMPRC filed a combined request before the New Mexico Supreme Court to reject the companies' appeal related to the December 2021 NMPRC refusal and return the case to NMPRC.
However, on May 15, 2023, the court denied the request and scheduled oral arguments on the appeal for Sep 12, 2023.
Merger Commitment
Both PNM and AGR are committed toward the merger, which will provide benefit of more than $300 million to New Mexico consumers and communities. It will also offer rate relief of more than $16 million to Texas customers.
The companies can accelerate clean energy development in Texas and New Mexico, and lay further emphasis on consumer reliability and resiliency.
Motive Behind the Move
PNM Resources’ long-standing expertise in fulfilling environmental regulations and its focus on developing cost-effective generation units provide reliable and affordable power to customers. 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. The deal will create a leading U.S. regulated utility and renewable energy platform, which seems lucrative to both companies.
Focus on Renewable Energy
PNM Resources and AVANGRID are both committed in lowering emission and add more renewable sources in generation portfolio. Along with PNM and AGR, some other electric power industry companies like Dominion Energy, Inc. D and NextEra Energy, Inc. NEE are adopting measures to meet clean-energy targets.
Dominion Energy aims to cut emissions by 70-80% by 2035 from the level of 2005. By 2035, Dominion Energy also intends to make zero- and low-emitting resources accountable for 99% of the company’s electric generation. The company is working on offshore wind projects, battery storage projects and hydropower projects to lower emissions.
D’s long-term (three- to-five year) earnings growth rate is pegged at 20%. It had delivered average earnings surprise of 1.7% in the last four quarters.
NextEra Energy is aiming to reduce total carbon emissions by 67% within 2025 from 2005 base. It continues to work on its strategy of making a long-term investment in clean-energy assets. The company expects to be able to add 33-42 gigawatts of new renewables in the 2023-2026 period to the generation portfolio via clean-energy investments.
NEE’s long-term earnings growth rate is pegged at 8.38%. The Zacks Consensus Estimate for 2023 earnings per share indicates a year-over-year increase of 7.24%.
Price Performance
In the past month, shares of PNM have gained 0.3% compared with the industry’s 1.3% growth.
Image Source: Zacks Investment Research
Zacks Rank
PNM currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
