Sempra Pipelines & Storage, a subsidiary of Sempra Energy (SRE), has completed its acquisition of AEI’s stake in two jointly owned South American utilities, Chilquinta Energia and Luz del Sur, for $875 million.
Prior to the acquisition, Sempra and AEI each owned 50.0% of Chilquinta Energia in Chile and about 38.0% of Luz del Sur in Peru. Post acquisition, Sempra Pipelines & Storage became the sole owner of Chile’s Chilquinta Energia and owns approximately 76.0% of Luz del Sur in Peru. The remaining shares of Luz del Sur are held by institutional investors and the general public.
The company had announced the acquisition in January 2011. The transaction is expected to contribute additional earnings for Sempra Energy of approximately 15 cents per share in 2011 and 22 cents per share in 2012. This implies earnings per share in the range of $4.00–$4.30 for 2011. The deal is expected to close in the second quarter of 2011.
Chilquinta Energia is an electric distribution utility in the cities of Valparaiso and Vina del Mar in central Chile. Luz del Sur is an electric distribution utility in the southern zone of metropolitan Lima, Peru. The purchase price was determined by valuing the assets in Chile and Peru at $490.0 million and $385.0 million, respectively.
With this deal, Sempra Pipelines & Storage also acquired interests in two energy-services companies, Tecnored, S.A., and Tecsur, S.A., which were previously jointly owned with AEI.
Sempra Energy’s diversified basket of businesses insulates its operations to a significant degree from regulatory rate risks. We believe that Sempra Energy presents a lower risk-profile relative to its peers. The company appears to be well positioned given stable earnings through its utility subsidiaries. It is also implementing infrastructure improvement programs focused mainly on system reliability, smart grid technology and compliance with California’s renewable energy mandate.
However, we are maintaining our Neutral recommendation on the company due to a lack of any near-term positive catalysts, along with near-term trepidation in natural gas prices, an ongoing land dispute regarding its LNG terminal in Mexico and pending regulatory cases. Thus, it presently retains a short-term Zacks #3 Rank (Hold) that corresponds to our long-term Neutral recommendation on the stock.
Sempra Energy is a southern California-based energy services holding company involved in the sale, distribution, storage, and transportation of electricity and natural gas. The company’s businesses are broadly divided into Sempra Utilities, and Sempra Global and Parent. The company mainly competes with Edison International (EIX) and Pacific Gas & Electric Co. (PCG).
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