RE:RE:RE:RE:RE:RE:AEP to sell Kentucky operations to Liberty TickerTwit wrote: Capharnaum wrote:
Most of the latest transactions for regulated assets have been done between 1.8 and 2.0 times the base rate (basically the book value of assets for the regulator). Kentucky Power was acquired at 1.3 times the base rate
There was assumed debt, so the net purchase price was $2.846B+$1.221B = $4.067B. The rate base is important for future income, but the actual bought equity appears to be about $1B at a purchase price of $2.846B, implying an acquisition premium of 185%. And the future liability for converting from coal generation is yet to come.
I freely admit my lack of experience in regulated utility analysis. Someone please correct me if I'm wrong; I do not like these numbers. I also don't like that this deal is being marqueed as "accretive to
adjusted net EPS", which borders on non-GAAP meaninglessness.
The debt is included in the purchase price, it's not in addition to the $2.725B acquisition.
Within the $2.725B, they are taking over $1.2B in debt and they will finance the remainder $1.6B using the public offering of $0.6B-0.7B and the remainder of $0.9B-1.0B will be hybrid debt/equity (like they did previously this year) or monetization of non-regulated assets/investments. (Slide 13 of their presentation)
Hence, they paid approx 1.3x the rate base. Since the rate base is $2.2B and there was $1.2B of debt, assuming that the regulator works with an actual capitalization (most regulators work with a presumed capital structure instead), that would mean $1B of the rate base was equity.
Please note that transactions are always done based on the rate base, and that the rate base always includes a portion of debt that varies between 40-60% for all utilities.
Also, when you purchase a utility that requires investment in the future, your investment will slowly but surely reduce the premium spent compared to the base rate.
As to my background, I'm well versed in utilities as I'm a bit of an expert in the field (accounting, M&A and regulatory filings).
Lastly, considering the perpetual nature of utilities and the guaranteed return on money invested into it through time delayed rate adjustments, adjusted results are likely a better performance measure than GAAP results for utilities.