Alliant Energy Buys Into Four Brazilian Power Companies
Alliant Energy Resources today announced that the company has agreed to acquire a significant stake in four Brazilian electric utilities serving more than 820,000 customers for a total investment of approximately $347 million. The move represents a major step in Alliant Energy subsidiary Energy Resources' plans to pursue energy-related investments in international markets. With this investment, Alliant Energy will be involved in serving more than 2 million utility customers around the world. The transaction is also expected to position the company's Brazil partners for future acquisitions in that country's Northeast region.
Alliant Energy Resources' strategic plan for Brazil, developed with its partners there, earmarks a majority of the investment to be set aside, within the existing companies. This portion will be used for future growth opportunities in electric distribution and generation in Brazil, and for reducing debt. Hoffman added that Alliant Energy Resources currently expects returns from this investment in excess of 15 percent, which satisfies the company's internal threshold for new investments.
"I believe that our shareowners will be very pleased with this investment and the future earnings it is expected to bring to our company," said Erroll
B. Davis Jr., president and CEO of Alliant Energy. "We are especially pleased that we could participate in a negotiated purchase involving such fine companies."
Alliant Energy Resources has agreed to acquire a 49.2 percent ownership in
Companhia Forca E Luz Cataguazes-Leopoldina (Cataguazes), an electric utility. Cataguazes owns a majority stake in CENF, another electric utility company, as well as a majority interest in Energisa S.A., an energy development company.
As part of the same investment, Alliant Energy Resources will directly acquire 45.6 percent of Energisa itself, which holds majority stakes in two regulated utilities -- Energipe and Celb. As part owner of Cataguazes, Alliant Energy Resources will hold both indirect and direct interests in Energisa. The acquisitions of these equity stakes, through negotiated transactions with CMS Energy Corp. and the Botelho family, are expected to be complete by mid-February.
Davis indicated that the investment is anticipated to dilute Alliant
Energy Corp.'s earnings per share by approximately three percent in 2000, with positive contributions to the bottom line expected in subsequent years. The investment is not expected to affect Alliant Energy Corp.'s dividend policy.
"This is an example of how we can carefully grow our long-term corporate earnings through selective investments, while at the same time defending and reshaping our core utility businesses," said Davis. "With more than a century of experience operating three highly-successful U.S. utilities, Alliant Energy is now poised to play an active role in the future success of Energisa and Cataguazes."
"This is a significant step in our international growth strategy and reflects our desire to pursue opportunities in high-growth markets where we can apply our decades of experience as an electric utility," said Jim Hoffman, president of Alliant Energy Resources. "Adding to our international portfolio, this initial investment establishes Alliant Energy as a major investor in Brazil, and also creates a platform for Energisa's further expansion in that country. We believe that growth will further enhance the value of this investment. With the expected reinvestment of earnings from the Brazil holdings over the next several years, we anticipate that the value of our holdings could exceed $400 million."
Concession contracts for the Brazilian utilities set the terms of their electric rates. As outlined in those contracts, the utilities will receive inflation increases each year, and a pass-through for certain costs for the first of five or six years of those contracts. All are still receiving normal inflation increases and will continue to receive those increases until 2002.
Brazil investment at a glance:
Utility Customers Annual sales 1999 Revenue Employees
(megawatt hours) ($US/year*)
Energipe 382,738 1,890,000 $110 million 599
Celb 119,059 483,000 $28.9 million 270
Cataguazes 251,404 940,000 $77.8 million 720
CENF 67,600 303,000 $22.2 million 93
TOTAL: 820,801 3,616,000 $ 238.9 million 1,682
* Revenues listed in U.S. dollars (US$), converted from Brazilian Reais
(R$) using: R$1.80 = US$1.00
In comparison, Alliant Energy's domestic utility subsidiaries serve a combined total of 919,000 electric customers with annual sales of approximately 24.5 million megawatt hours.
"We believe that the Brazil energy market offers great opportunity for sales growth in an increasingly healthy economic environment," said Hoffman.
"Our review indicates that energy consumption there is growing faster than electric use in U.S. homes and businesses. While demand for electricity in the U.S. grows by two to three percent annually, it is expected to increase by six to eight percent annually over the next four years in Brazil. Our research indicates that the gross domestic product in Brazil is projected to grow at four to five percent annually in the same time period."
Alliant Energy Resources, through its wholly owned subsidiary, Alliant Energy International, Inc., will finance the Brazil investments through debt and with cash made available through the internal transfer of existing diversified corporate assets.
Alliant Energy officials currently do not anticipate pursuing another investment of this magnitude, and short-term plans call for earnings from the Brazil companies to be reinvested in the businesses there. Alliant Energy Resources, however, will continue to analyze other international investment opportunities as they arise.
"By pursuing a negotiated transaction in Brazil, our acquisition costs are believed to compare favorably to prices paid by companies which purchased utility assets through a competitive bidding process," said Davis. "The 1999 devaluation of Brazil's currency also improves the value of Alliant Energy's investment when compared, on a cost-per-customer or cost-per-megawatt basis, to acquisitions by other companies."
Alliant Energy Resources has entered into a new shareholders agreement with the Brazilian companies, which would allow it to name two directors to the boards of each company and its subsidiaries. The agreement will also provide Alliant Energy Resources with a role in selecting each company's management team, along with voting rights relating to critical issues at the Brazilian companies and their subsidiaries.
Edited by Stephen Heiser