Deals

Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

Everything's bigger in Texas -- and that suits NextEra Energy just fine. 

The Florida-based utility said on Friday it will buy an 80 percent stake in Oncor Electric Delivery in a deal that values Texas's largest electric transmission operator at about $18.4 billion, including debt. Oncor's size makes it much more than a consolation prize for NextEra, which just this month dropped a planned $4.3 billion acquisition of Hawaiian Electric after regulators vetoed that deal.

NextEra's Next Era
The utility's acquisition of Oncor is set to be "meaningfully accretive" to its shares, which should support them, despite the fact they're near a record high
Source: Bloomberg

NextEra had Oncor on its radar since at least mid-2014, but as of earlier this year it looked like it would be out of its reach. (Oncor is being sold as part of debt-laden Energy Future Holdings' bankruptcy reorganization plan.) A rival bidder -- a group led by Hunt Consolidated -- agreed to a deal with Oncor instead, receiving approval from bankruptcy court and even conditional approval from the Public Utility Commission of Texas. Then the Hunt consortium backed out, allowing NextEra to re-enter the fray.

There's still wiggle room for other potential bidders such as Berkshire Hathaway and Edison International to make a play for Oncor while NextEra awaits the necessary approvals, and the company isn't eligible to receive a break fee if a topping bid lands before the bankruptcy court approves the deal. (If a superior proposal is made after that point, NextEra would get $275 million, unless it lifts its own offer in response.) But those other suitors may be better off focusing on this list of targets compiled by my colleague Liam Denning, anyway. 

Chasing Growth
NextEra's Oncor deal should enable it to hit the higher end of its goal EPS growth rate of 6-8 percent through 2018 (from a 2014 base)
Source: Bloomberg
*NextEra's 2018 EPS could be closer to $7.10 if 8% target is reached **Consensus analyst figures

Assuming the Oncor deal goes through, NextEra  has all but guaranteed EPS growth of 8 percent a year through 2018 -- above and beyond the industry average of 4 percent to 5 percent. And if the transaction doesn't happen, NextEra's annual EPS should still expand by a healthy 6 percent, at worst.

NextEra is trading at a premium to its rivals based on a multiple of enterprise value to blended forward Ebitda: It's valued at 10.9 times Ebitda, compared to the industry mean of 9.2, according to data compiled by Bloomberg. At least for now, that seems warranted, deal or no deal. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Gillian Tan in New York at gtan129@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net