GO
Loading...

Iberdrola Mulls Capital Hike to Finance Energy East

Iberdrola said on Tuesday that it is considering carrying out a capital hike to help finance the 6.4 billion euro ($8.6 billion) acquisition of Energy East , a U.S. electrical group, and expects the merger to contribute to group earnings within a year.

In a presentation, Iberdrola said: "Different alternatives for financing the deal, including a capital hike aimed at maintaining financial solidity, are being considered."

The decision to carry out a capital hike will be made before the close of the deal, which is estimated to achieve regulatory clearance in the second half of 2008.

Speaking to analysts, Iberdrola CFO Jose Sainz Armada said the timing of the capital hike will depend on market conditions.

"We want to maintain Iberdrola's solid financial profile and will assess market conditions to decide when we do it," he said.

Though management stopped short of stating a share issue is guaranteed, analysts regarded the move as a virtual given.

"An equity issue looks very likely rather than a possibility," said a London-based broker.

Serious Regulatory Obstacles

Questioned by analysts on the wisdom of raising capital before the deal was finalized, Pedro Azagra, Iberdrola's development director said the company did not expect the merger to meet serious regulatory obstacles.

"This is a friendly deal, recommended by Energy East's board and the likelihood it will go ahead is very high," he said.

Iberdrola has agreed to pay 3.4 billion euros ($4.57 billion) in cash and take on Energy East's 3 billion euros in debt, valuing the company at 21.08 euros ($28.38) per share.

Iberdrola also noted the acquisition will allow it to generate the taxable minimum necessary in order to take advantage of U.S. tax credits.

However, the valuation does not take into account expected fiscal benefits, synergies or goodwill.

Chairman Ignacio Galan told analysts that he expects the transaction "to be accretive from the very first year," and reiterated the group's interest in the U.S. as a growth market and a destination for considerable future investment.

"The U.S. provides tremendous opportunities and there is a clear political decision to press ahead with more energy, more green energy and more infrastructure," he said.

Contact U.S. News

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    Please choose a subscription

    Please enter a valid email address
    To learn more about how we use your information,
    please read our Privacy Policy.

Don't Miss

U.S. Video

  • Expect financials to 'perk up': Pro

    David Katz, Matrix Asset Advisor CEO, provides his outlook on the markets and explains why he is not giving up on IBM.

  • IBM reports mixed results

    Sherri Scribner, Deutsche Bank Research, weighs in on Big Blues' quarterly numbers of $2.91 Adj. EPS on revenues of $19.59 billion. Also Scribner provides perspective on the tech giant's cloud growth and new products.

  • Wall Street seeks to extend rebound

    With the flood of earnings continuing today, stocks look to add to Monday's rally that saw the major averages chalk up their best gains of April.