Alliant Energy Makes Big Brazilian Buy
With this investment, Alliant Energy will be involved in serving more than 2 million utility customers around the world. Under the transaction agreement, Alliant Energy Resources plans to acquire a 49.2% ownership in Companhia Forca E Luz Cataguazes-Leopoldina (Cataguazes). Cataguazes owns a majority stake in CENF, another electric utility company, and a majority interest in Energisa S.A., an energy development firm. As part owner of Cataguazes, Alliant Energy Resources holds both indirect and direct interests in Energisa, representing a 45.6% stake.
Energisa holds majority stakes in two regulated utilities, Energipe and Celb. The acquisitions of these equity stakes, through negotiated transactions with CMS Energy and the Botelho family, are expected to be complete by mid-February.
"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."
Davis said Alliant Energy expects the investment to dilute the corporation's earnings per share by about 3% 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," he said. "With more than a century of experience operating three highly-successful United States utilities, Alliant Energy is now poised to play an active role in the future success of Energisa and Cataguazes."
Jim Hoffman, Alliant Energy Resources president, said the investments represent a significant step in the country's international growth strategy and reflects its desire to pursue opportunities in high-growth markets. "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," Hoffman said.
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 said Alliant Energy Resources currently expects returns from this investment in excess of 15%, which satisfies the company's internal threshold for new investments.
"Cataguazes and Energisa have solid track records in acquiring state-run distribution companies and improving their operational performance. One uniquely attractive element of this investment is our ability to partner with the respected Botelho family. With 95 years of utility operating experience, their expertise will be invaluable," he said.
The Botelho family founded Cataguazes, one of the first companies listed on the Rio de Janeiro Stock Exchange in 1905. As a regulated utility, Cataguazes serves more than 250,000 customers in the state of Minas Gerais and provides more than 940,000 MWh of energy annually. In 1997, Cataguazes purchased majority control of CENF, an electric utility located in the state of Rio de Janeiro, providing 303,000 MWh of energy each year to about 67,000 customers. Both Cataguazes and CENF were recently granted renewable 30-year concession contracts to provide regulated electric utility service in a defined service territory.
Cataguazes is also developing several small hydroelectric generating stations to serve its customers. Through Cataguazes, the Botelho family was also instrumental in the formation of Energisa in 1997 as a holding company to participate in the privatization of Brazil's government-run utilities. Its larger utility subsidiary, Energipe, provides 1.89 million MWh of electricity annually to over 380,000 customers in the state of Sergipe. Its other holding, Celb, serves nearly 120,000 customers in the state of Paraiba, providing 483,000 MWh of electricity annually. Both have recently been granted 30-year concession contracts. In addition, Energisa has an exclusive contract to develop a 100 MW co-generation facility to supply Energipe customers.
Concession contracts for the Brazilian utilities set the terms of their electric rates. As outlined in those contracts, the utilities 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.
Alliant Energy's domestic utility subsidiaries serve a combined total of 919,000 electric customers with annual sales of about 24.5 million MWh. "We believe that the Brazil energy market offers great opportunity for sales growth in an increasingly healthy economic environment," Hoffman said. "Our review indicates that energy consumption there is growing faster than electric use in United States homes and businesses. While demand for electricity in the United States grows by 2% to 3% annually, it is expected to increase by 6% to 8% annually over the next four years in Brazil. Our research indicates that the gross domestic product in Brazil is projected to grow at 4% to 5% annually in the same time period."
Alliant Energy Resources, through its wholly owned subsidiary, Alliant Energy International, plans to finance the Brazil investments through debt and with cash made available through the internal transfer of existing diversified corporate assets. Alliant Energy officials currently don't 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," Davis said. "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 also provides 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.
Alliant Energy Corp. is the parent company of three domestic utilities providing electric, gas, water and steam to 1.3 million customers in Iowa, Wisconsin, Minnesota and Illinois. The company's diversified investments holdings include transportation, oil and gas development, real estate, and telecommunications. The corporation's other international investments are located in New Zealand, Australia, Mexico, and China.
Edited by April C. Murelio
editor@poweronline.com