FirstEnergy (FE) Announces Strategic Equity Financing of $ 3.4 Billion; Announces long-term profit growth rate target of 6-8%
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FirstEnergy Corp. (NYSE: FE) today announced two strategic financings with two of the world’s largest infrastructure funds – Blackstone Infrastructure Partners and Brookfield Super-Core Infrastructure Partners (Brookfield) – which will raise a combined $ 3.4 billion in equity to strengthen FirstEnergy’s financial position. position, capitalize on additional investment opportunities and address all equity plans. FirstEnergy also introduced a long-term BPA growth rate of 6-8%.
FirstEnergy announced an agreement to issue $ 1 billion of common stock to Blackstone Infrastructure Partners at $ 39.08 per share, which is equivalent to the volume weighted average price (VWAP) of FirstEnergy’s common stock at the close of market on Friday, November 5, 2021. FirstEnergy also entered into a definitive agreement with Brookfield to sell a 19.9% stake in FET, the holding company of FirstEnergy’s three regulated transmission subsidiaries, for $ 2.4 billion, which represents an exceptionally attractive valuation of the electric utility of 40 times the P / E LTM.
The company also announced a $ 2.2 billion increase in its capital investment plan to 2025, which now totals $ 17 billion from 2021 to 2025, including $ 10 billion in investments in the durable energy.
“We are pleased to announce these transformative strategic financings with two of the world’s largest infrastructure funds, Blackstone Infrastructure Partners and Brookfield. With these financings and, equally important, long-term partnerships, FirstEnergy will be even better positioned to capitalize on the growth opportunities ahead and advance our company’s key business priorities, ”said Steven E. Strah, President and CEO. from the management of FirstEnergy. “We are delighted to have achieved a historic premium valuation in the utility industry for the FET transaction with a longtime, experienced and respected partner at Brookfield. With Blackstone Infrastructure Partners’ $ 1 billion investment, these transactions will be essential catalysts to realize our long-term strategy and drive smart grid and clean energy initiatives for our customers and communities. They are also a testament to our strong business model and our talented and dedicated employees who are committed to executing our long-term strategy.
“Our strong operational momentum and increased financial strength reinforce our confidence in our ability to increase shareholder value and best serve the interests of all of our stakeholders,” Strah continued. “This confidence is reflected in our long-term growth rate of 6-8%, as well as our significantly expanded investment plan.”
Donald T. Misheff, Non-Executive Chairman of the Board of FirstEnergy, said: “The entire Board of Directors, including our voting and non-voting members, unanimously supports these important actions. This represents a pivotal moment in the company’s trajectory and positions FirstEnergy to generate shareholder value.
Blackstone Infrastructure Partners $ 1 Billion Common Equity Investment
FirstEnergy has reached an agreement to issue $ 1 billion of common stock to Blackstone Infrastructure Partners, Blackstone’s dedicated infrastructure group (NYSE: BX), at a price of $ 39.08 per share. FirstEnergy will appoint a representative selected by Blackstone Infrastructure Partners to its board of directors at the latest at the next annual meeting.
“We are delighted with our strategic investment in FirstEnergy,” said Sean Klimczak, Global Head of Infrastructure at Blackstone. “With today’s historic announcement and FirstEnergy’s rapidly expanding investment opportunities, the company is well positioned for accelerated growth. We look forward to supporting the management and board of directors in FirstEnergy’s further investment in smart grid resiliency and the transition to a clean energy future. “
Sale of minority interests in FET
FET owns and operates one of PJM’s largest transmission networks and includes FirstEnergy’s FERC-regulated transmission utility subsidiaries including American Transmission Systems, Incorporated (ATSI), Mid-Atlantic Interstate Transmission, LLC (MAIT ) and Trans-Allegheny Interstate Line Company (TrailCo). The cash transaction with Brookfield for a 19.9% stake in FET represents a P / E LTM of 40x. The P / E LTM 40x transaction multiple represents a premium of over 50% over the median P / E LTM for utility sector transactions.
Upon closing of the transaction, which is expected to take place in the first half of 2022, FirstEnergy will retain an 80.1% stake in FET and FirstEnergy staff will continue to operate the business. The transaction is subject to customary closing conditions, including Federal Energy Regulatory Commission (FERC) approval and review by the Committee on Foreign Investments in the United States.
Eduardo Salgado, Managing Partner of Brookfield Infrastructure Group and Director of Brookfield Super-Core Infrastructure Partners, said: “Brookfield believes FET is a very attractive investment given the high quality and long term stability of the business. . significant capital investment opportunities driven by network modernization, decarbonization and general electrification of the economy. We look forward to partnering with FirstEnergy and supporting FET’s customer-centric investments and long-term value creation opportunities.
Strengthening FirstEnergy’s balance sheet and financing additional growth opportunities
Together, these transactions will improve the company’s credit profile, provide funding for strategic capital spending, and meet all of FirstEnergy’s action plans except for annual issuances of up to $ 100 million in the framework of investments in common shares and employee benefit plans. These investment initiatives will also support a more resilient power grid, drive the transition to a low-carbon future, and better meet the evolving energy needs of customers, with a focus on emerging customer-centric technologies, modernization network and infrastructure for electric vehicles. These initiatives include:
- Building a technologically advanced distribution platform that improves grid reliability and resiliency, while enabling FirstEnergy and its customers to support a carbon neutral economy through efforts such as electrification.
- Modernize the company’s transport network and prepare it to integrate more renewable energies and distributed energy resources, enabling an energy-clean and carbon-neutral future.
- Support the company’s goal of achieving carbon neutrality by 2050, with an interim 30% reduction in greenhouse gas emissions under the company’s direct control by 2030.
Results forecasts and forward projections for 2022
FirstEnergy provides a profit forecast for the year 2022 of $ 2.30 to $ 2.50 per share, as well as a 2022 capital investment plan of $ 3.3 billion. The company also maintains its annualized dividend rate for 2022 at the 2021 level of $ 1.56 per share, subject to approval by the board of directors.
The company also provided the following financial projections:
- Projected funds from operations / debt ratio of 13% by 2024 at the latest; targeting mid-teens thereafter.
- $ 17 billion in capital investments from 2021 to 2025; $ 2.2 billion more than the previous plan.
Citigroup Global Markets Inc. and JP Morgan Securities LLC served as financial advisers to FirstEnergy in the sale of the minority stake in FET. JP Morgan Securities LLC was also the principal placement agent of FirstEnergy for the issuance of common shares to Blackstone Infrastructure Partners. Jones Day acted as legal counsel to FirstEnergy for both transactions. Moelis & Company served as financial advisor to the board of directors of FirstEnergy for both transactions. Skadden, Arps, Slate, Meagher & Flom LLP acted as legal counsel to Brookfield. Latham & Watkins LLP acted as legal counsel to Blackstone Infrastructure Partners.
FirstEnergy is dedicated to integrity, security, reliability and operational excellence. Its 10 power distribution companies form one of the largest investor-owned power systems in the country, serving customers in Ohio, Pennsylvania, New Jersey, West Virginia, Maryland and New York. The company’s transmission subsidiaries operate more than 24,000 miles of transmission lines that connect the Midwest and Mid-Atlantic regions. Follow FirstEnergy on Twitter @FirstEnergyCorp or online on www.firstenergycorp.com.