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1 October 2020

NextEra misses Duke, (phew) but lands smaller Gridliance

NextEra Energy recently made takeovertures to Duke Energy and escaped yet another bullet, because the management at Duke rebuffed the deal. As we understand it the approach was informal, and typically Duke would have said the offer, if one was ever made, was not enough.

NextEra already has a position with Florida Power and Light and Gulf Power where it is in the process of trying to merge the two, but also has hit regulatory inertia to its plan to push them aggressively towards renewables. With Duke NextEra would have hit resistance both inside and outside the company with the rate of change and acceptance of renewables.

Duke surged up 7% in the few days since the approach was made, and in all likelihood the two never got around to discussing details. Today that puts Duke’s value at $65 billion to NextEra’s $135 billion. The residual rise in Duke’s valuation, is only because some investors in the US market think that a hostile takeover might emerge – since that idea was circulated around the stock market, NextEra has been very clear that it would never do that – it would need the regulatory approval of about 6 States and well as FERC and acceptance of the right value by Duke’s shareholders. If possible it would be a long drawn out process, which needs co-operation on both sides. Before talks leaked out Duke was valued at $61 billion market having spent the year declining by some 14%. We would now expect it to slide back, and then down further.

It is probably NOT the time for the largest ever US utility acquisition, but in the next couple of years it could soon be ripe, as share prices begin to fall on those who have not moved over to renewables plus battery. At Rethink Energy we have an exceptionally low opinion of Duke, and list it among the fossil fuel loving companies in the US, despite its constant pretense that it is pursuing a zero carbon plan. That plan includes prolonged gas turbine usage which relies on Carbon Capture, which has been shown on numerous occasions not to be commercially viable. There is not one global instance of a CCUS strategy getting even close to making sense. This is just Duke being shy of spending, and trying to preserve its balance sheet.

NextEra operates a wholesale renewables business, which is around half of its revenues, and the two regulated utilities mentioned earlier, but it seems to us that pursuing wholesale markets and more transmission opportunities is perhaps it best approach to driving US revenues.

Two days ago GridLiance, a rural utilities transmission business which owns 700 miles of transmission lines in 6 states, in CAISO, the Southwest Power Pool and the Midcontinent Independent System Operator, agreed to be acquired by NextEra for $660 million including debt, from private equity group Blackstone, and will be subsumed into NextEra Energy Transmission.