Engie Tries to Catch Peers With $14 Billion UK Power Grid Bet

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(Bloomberg) — After four years of taking a cautious approach to deals, Engie SA Chief Executive Officer Catherine MacGregor made her biggest acquisition yet with a £10.5 billion ($14.2 billion) bet on UK electricity grids.

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With its purchase of UK Power Networks, Britain’s largest power-distribution operator, Engie is banking on rising demand from electric vehicle chargers to data centers. The deal gives the French utility a second growth pillar beyond its renewable and battery-storage assets, and was greeted enthusiastically by investors. 

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Power network operators worldwide have been rolling out huge multiyear investment programs in an effort to keep pace with soaring demand for grid access. They were already struggling to link up new sources of power generation such as wind and solar farms, and the more recent boom in data centers for artificial intelligence has overwhelmed them with connection requests.

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“We can see momentum for the energy transition in the UK,” the 53-year-old Engie CEO told investors on Thursday. The shift that’s underway will “require massive grid investment,” helping boost profits and raise the predictability of Engie’s earnings and cash flow, she said. 

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European rivals such as Spain’s Iberdrola SA, Italy’s Enel SpA, and Germany’s EON SE have already outlined plans to double down on grid investments and participate in the shift away from fossil fuels. Engie was a laggard in this regard, with much of its revenue coming from French gas networks and power generation.

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Opportunities to buy network assets sales have been relatively rare. Less than two years ago, Engie was outbid by Iberdrola for the purchase of regional British network operator Electricity North West Ltd. A successful deal this time will correct the French company’s long-term underweight exposure to power networks compared with is peers, RBC analysts led Joseph Pepper wrote in a note.

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Engie’s shares rose 7.2% to €29.53 on Thursday, the highest in 15 years. 

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The deal — worth £15.8 billion including debt — will be financed by borrowing, the sale of about €4 billion ($4.7 billion) of assets and the issuance of €3 billion in new shares. The company said it will preserve its investment-grade credit rating.

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“The street seems to say that the refinancing will go well, as the deal comes with the group’s higher earnings guidance,” said Jean-Francois Delcaire, a fund manager at HMG Finance in Paris. Hedge funds are also making “massive bets” on industries that will benefit from data center demand, which is “underpinning the momentum” of Engie’s shares, he said. 

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Since becoming CEO at the start of 2021, MacGregor has favored investments in the company’s own projects as well small and medium-sized acquisitions mostly in renewables. They include a $1.6 billion purchase of battery storage assets in the US in 2023, and limited investments in power-transmission networks in South America.

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At the same time, MacGregor made many divestments, selling Engie’s services unit Equans for €7.1 billion and offloading other less profitable businesses and power plants from the company’s portfolio.