American Electric Power Co. Inc. executives have struck a deal to have two private-equity heavyweights acquire a minority stake in two of its transmission-only utilities.
KKR and PSP Investments, one of Canada’s largest pension investment firms, have agreed to pay a little more than $2.8 billion for 19.9% of AEP’s Ohio and Indiana & Michigan Transmission Companies. The proposed investment covers about 5% of AEP’s total transmission rate base and AEP executives said the deal will immediately add to the company’s earnings when it closes, which is expected in the second half of this year.
“Areas such as Ohio and Indiana are experiencing growth that has not been seen for decades,” AEP President and CEO Bill Fehrman said in a statement. “This transaction allows us to address a portion of our capital needs efficiently and at a very attractive valuation, benefiting our customers and supporting economic development in our states.”
KKR and PSP have committed to funding their share of the transmission utilities’ capital future capital spending.
Fehrman and his team two months ago said they were growing their total capex plans for the next five years by some $11 billion as they, like many of their peers, look to meet load growth already happening today and expected to continue. As part of their $54 billion capex plan through 2029, AEP’s leaders had expected to sell more than $5.3 billion in new stock but the planned KKR/SPS deal will slash that figure roughly in half.
Several analysts gave the planned sale a thumbs up. BMO Capital Markets analyst James Thalacker told clients that the $2.8 billion price tag on the proposed equity stake is “significantly higher than expectations” while Morgan Stanley’s David Arcaro called out the expected benefit to AEP’s balance sheet.
Shares of AEP (Ticker: AEP) rose more than 1% Jan. 10 on word of the transmission deal and were up a little more to $93.81 Jan. 13. Over the past six months, they have climbed about 3%, which has grown the company’s market capitalization to $50 billion.
