8-K: Eversource Energy to Sell Aquarion Water Company for $2.4 Billion

Eversource Energy has announced an agreement to sell its subsidiary, Aquarion Water Company, to Aquarion Water Authority for approximately $2.4 billion.

Summary

• Eversource Energy has entered into a definitive agreement to sell Aquarion Water Company to Aquarion Water Authority (AWA) for approximately $2.4 billion.
• The transaction includes $1.6 billion in cash and the extinguishment of $800 million in net debt.
• The sale is subject to regulatory approvals from Connecticut, Massachusetts, and New Hampshire, as well as Hart-Scott-Rodino Antitrust Improvements Act approval and other customary closing conditions.
• The deal is expected to close in 2025.
• Eversource anticipates recording a loss of approximately $300 million in its Q4 2024 results due to the planned sale, including $140 million of estimated income tax expense.
• Eversource intends to use the proceeds to pay down parent company debt and reinvest in its core electric and natural gas businesses.
• Eversource reaffirms its long-term EPS growth target of between 5% and 7% through 2028.

Sentiment

Score: 7

Explanation: The announcement is generally positive, as it allows Eversource to streamline its operations and focus on core businesses. The expected loss on sale is a negative, but the overall strategic direction is viewed favorably.

Positives

• Eversource will receive $1.6 billion in cash from the sale.
• The company will eliminate $800 million in net debt.
• Eversource plans to reinvest in its core electric and natural gas businesses.
• The company reaffirms its long-term EPS growth target of 5% to 7% through 2028.
• The sale allows Eversource to optimize its portfolio and strengthen its balance sheet.

Negatives

• Eversource expects to record a $300 million loss on the sale of Aquarion in Q4 2024, including $140 million of estimated income tax expense.

Risks

• The transaction is subject to regulatory approvals, which may not be obtained or may delay the closing.
• The company faces risks related to cyberattacks, capital market disruptions, economic changes, and regulatory actions.
• The company's forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially.

Future Outlook

Eversource expects to close the transaction in 2025 and intends to use the proceeds to pay down debt and reinvest in its core electric and natural gas businesses, while reaffirming its long-term EPS growth target.

Management Comments

• Eversource Chairman, President and CEO Joe Nolan stated that the transaction reinforces the company's commitment to its core electric and natural gas operations.
• RWA & AWA Interim President and CEO Sunder Lakshminarayanan expressed excitement about advancing the water utility's regional supply strategy.

Industry Context

The sale of Aquarion reflects a strategic shift for Eversource to focus on its core electric and natural gas operations, aligning with industry trends of utilities optimizing their portfolios.

Comparison to Industry Standards

• The sale price of 1.7x rate base is within the typical range observed in water utility transactions.
• Other comparable transactions include the acquisition of American Water Works by Veolia and the purchase of various municipal water systems by private equity firms.
• These transactions often involve similar strategic rationales, such as focusing on core operations and optimizing capital allocation.

Stakeholder Impact

• Shareholders: The sale is expected to strengthen Eversource's balance sheet and support its long-term EPS growth target.
• Customers: Reinvestment in core electric and natural gas businesses is expected to benefit customers through improved reliability and service.
• Aquarion Employees: The Aquarion Water Authority is expected to continue Aquarion's track record of superior customer service, industry-leading reliability and operational success.
• Communities: The RWA and Aquarion share similar missions to be the service provider and employer of choice.

Next Steps

• Obtain regulatory approvals from Connecticut, Massachusetts, and New Hampshire.
• Satisfy other customary closing conditions.
• Close the transaction in 2025.
• Pay down parent company debt.
• Reinvest capital into core electric and natural gas businesses.

Key Dates