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.