Iberdrola Agrees to Buy Elektro Eletricidade & Servicos for $2.4 Billion

Iberdrola SA agreed to buy Brazil’s Elektro Eletricidade & Servicos SA for 1.77 billion euros ($2.38 billion), gaining power distribution in an economy expanding at the fastest pace in more than two decades.

Spain’s biggest utility will own 99.68 percent of Elektro, which supplies electricity in Brazil’s most populous state of Sao Paulo, the Bilbao-based company said yesterday. The assets were sold by Ashmore Energy International Ltd.

This improves Iberdrola’s “geographical diversification,” said Victor Peiro, an analyst at Caja Madrid Bolsa SV in Madrid. “It’s buying a regulated asset and that provides the most visibility for earnings.”

Iberdrola, the largest owner of wind energy parks, has been expanding abroad and now generates more than half its power outside Spain. Iberdrola bought U.S. utility Energy East Corp. in 2008 and Scottish Power Ltd. in 2007 to reduce reliance on a domestic market where demand has slowed.

The stock rose 1.2 percent to 6.248 euros at 2:17 p.m. in Madrid. Iberdrola shares have climbed 8.3 percent this year, giving it a market value of 34.3 billion euros.

For Bondholders

AEI, the closely held former international unit of Enron Corp., said it will sell Elektro and stakes in nine other power businesses for $4.8 billion. The deal accounts for about 80 percent of AEI’s assets and includes electricity and gas distributors in Latin America and a power plant in Poland, the Cayman Islands-registered company said in a statement.

Photographer: Denis Doyle/Bloomberg

The purchase by Iberdrola , the largest owner of wind energy parks and Spain’s biggest utility, fits a strategy that now has the company generating more than half its power outside Spain. Close

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Photographer: Denis Doyle/Bloomberg

The purchase by Iberdrola , the largest owner of wind energy parks and Spain’s biggest utility, fits a strategy that now has the company generating more than half its power outside Spain.

“From a ratings perspective, this is favorable to bondholders” of AEI, said Aneesh Prabhu, an analyst with Standard & Poor’s in New York. “The company had plans for an initial public offering, but decided against it when the IPO markets didn’t do well,” he said. In the company’s opinion, “this mode of monetization created maximum value.”

AEI was created by Ashmore Group Plc, a London-based investment manager, to invest in energy companies in emerging markets. Many of AEI’s assets were bought from Enron Corp. for $1.8 billion in 2006. As of June, Ashmore Group controlled 57 percent of AEI’s stock, according to a regulatory filing.

Spain Sales

Peiro said Iberdrola will likely pay for the deal with revenue from a 22 billion-euro power bond sales program by the Spanish government. Spain sold the first 2 billion-euro portion of the bonds this month to repay utilities including Iberdrola that lent money to the Spanish power system to hold down consumer prices over the past decade.

Iberdrola said in a presentation that it intends to propose integrating of Elektro and Neoenergia SA, a Brazilian company in which Iberdrola owns a 39 percent stake, without providing further details. Previ, the pension fund of Banco do Brasil SA employees, owns 49 percent of Neoenergia.

AEI, which operates out of Houston, is selling stakes in operations in Argentina, Columbia, Peru, Panama, El Salvador and Poland to eight other parties. Proceeds will be used to pay debt with the remaining cash used to help pay for equity needs for generation projects, AEI said.

“After AEI withdrew its initial public offering in October 2009, the company and its shareholders began evaluating strategic alternatives,” Jim Hughes, chief executive officer of AEI, said in the statement yesterday. AEI decided to sell the “vast majority” of its regulated energy assets, return the capital to shareholders and focus on its international power generation business, Hughes said.

After the transaction, AEI will operate 2,236 megawatts of generating capacity in Central and South America, Asia and the Caribbean, the company said.

Sempra Energy, owner of the largest U.S. gas distributor, will pay about $875 million for stakes in power utilities owned by AEI in Chile and Peru, the San Diego-based company said in a statement. Sempra, which had stakes in both utilities, will own 100 percent of Chilquinta Energia in Chile and 76 percent of Luz del Sur in Peru after the transaction closes, the company said.

To contact the reporters on this story: Mark Chediak in San Francisco at mchediak@bloomberg.net. Serena Saitto in New York at ssaitto@bloomberg.net;

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net.

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