Cross-Border M&A Deal of the Year - Duke Energy

Cross-Border M&A Deal of the Year - Duke Energy

M&A Electricity Renewable Brazil China Peru Chile Ecuador Guatemala El Salvador Argentina

When Duke Energy began the process of exiting its international energy business segment in February 2016, analysts wondered how long it would take the US-based company to offload its more than 4,000 MW worth of assets in Latin America.

Only eight months later, the company reached an agreement to sell all of its plants in the region through two deals it struck worth $1.2 billion each with China Three Gorges Corporation (CTG) and I Squared Capital for its assets in Brazil and the rest of Latin America respectively.

“From signing to payment, the closing process lasted only about 2.5 months, which required very smart planning and tight execution”, says Carolina Marcondes, communications director of Chinese power company CTG.

The volume of the transaction and the swift execution of the deals make Duke Energy’ sale of its Latin American assets the winner of this year’s Cross-Border M&A Deal of the Year.

While M&A analysts will say that most transactions require one party to make more concessions than the other, participants insist this deal offered a win-win solution. Supported by Credit Suisse and JP Morgan as financial advisors, Duke Energy wanted to dispose of its assets to focus more on its US businesses.

"Our strategic transformation is gathering momentum as we exit the Latin American market to focus on our domestic regulated core business, which was bolstered by our recent Piedmont Natural Gas acquisition," says Lynn Good, CEO of Duke Energy.

“It's also a clear win for I Squared Capital and China Three Gorges, which are acquiring quality operations,” Good says. The buyers expressed a desire to own mature and operating power plants in Latin America meshed closely with the seller’s divestiture interest.

China Three Gorges, which has progressively built its presence in Brazil since the formation of a joint venture with EDP, increased its holdings by 2,274 MW by buying eight hydroelectric plants located on the Paranapanema River and two small hydroelectric plants located on the São Paulo state Sapucaí-Mirim River.

The deal offered value because the assets were priced much lower than the historic price of Duke Paranapanema’s shares on the Brazilian stock exchange, says Marcondes.

I Squared Capital, an infrastructure investment manager with a larger footprint in the industrialized economies, also saw Duke’s exit as a fit with its ambitions of embarking into a new region.

Faced with the opportunity to venture into a multitude of new power markets through the stroke of one pen, the New York-based firm sought to capitalize on the multijurisdictional offer of projects that Duke presented.

Through the sale, I Squared Capital acquired 2,300 MW of hydroelectric and natural gas generation plants, along with 730km of 220 kV transmission lines and natural processing facilities in Peru, Chile, Ecuador, Guatemala, El Salvador, and Argentina. LF