The renewable energy company Omega Energia (MEGA3) announced last Monday that the British private equity firm Actis LLP will acquire 10% of its share capital for around R$770 million, as per a material fact.
Tarpon Investimentos, which owns the controlling interest in Omega, granted Actis stock options at a price of R$13.50 per share (the day’s closing price was R$10.20). Once Actis owns 10% of the company, a new shareholders agreement will come into effect, making the British company part of Omega’s controlling group.
Actis and Omega also signed an investment commitment, whereby the renewable energy company may require Actis to invest up to BRL 850 million in it. The investment would take place through a capital increase, in which Actis will have to subscribe for new Omega shares at a price of up to R$16 per share. The capital increase could take place in the period between October 1, 2022 and March 31, 2023, Omega said.
The announcement leads to a sharp rise in shares in Tuesday’s session. At 10:26 am (Brasília time), MEGA3 assets jumped 16.08%, at R$ 11.84.
In the same statement, Omega announced that it had signed a memorandum of understanding for a potential investment of up to $500 million from an undisclosed US partner. The investment would be used to develop or acquire renewable energy projects in the United States.
Omega also stated that it is in the final stages of negotiations to complete the acquisition of rights for a wind project with a projected installed capacity of 531 MW, located in the State of Texas, USA.
For Bradesco BBI, the entry of Actis ensures resources for growth and can alleviate the noise after the merger, raising the perception of corporate governance.
At first glance, to analysts, this deal appears to be positive, “with Omega killing two birds with one stone”. Actis is a well-known private equity firm in renewable energy/infrastructure. Having them as a relevant shareholder could help alleviate the noise after the merger between Omega Geração and Desenvolvimento, analysts say.
Second, Omega also secured significant equity financing (up to R$850 million) to continue developing its project schedule, which is a critical element in its history as a platform for
growth/consolidation of renewable energy in Brazil. BBI maintains a neutral recommendation and a target price of R$13, or a value 27% higher than the previous day’s close.
For Credit Suisse, the capital injection is positive at first reading, but more details needed.
“We view the initial parameters as positive for Omega shareholders, as the reference price of the option granted by Tarpon is above current share prices and the terms of the capital increase are above our target price and implied dilution. In addition, the future capital injection should help to develop Omega’s portfolio (funding was a concern considering challenging macro conditions) and having a new reference shareholder can also be positive with the alignment of minority shareholders in new investments and future increases capital”, the analysts point out.
As for new investments in the US, Credit is awaiting further information on the IRR calculation project [Taxas Internas de Retorno] and impacts for Omega. The recommendation for the MEGA3 asset is outperform (a performance above the market average), or a 43% upside potential compared to the previous day’s close.
Itaú BBA highlights that it expects a strong positive reaction, pointing out that the option to purchase up to 10% of Tarpon’s interest at the price of R$ 13.50 per share, which represents a premium of 32% over the current share price. “Given the grand prize, we believe Actis is likely to buy shares on the market and will only exercise the call option if it is ‘inside the money,’” the analysts point out.
Capitalization is no longer a concern, highlights the BBA. The dilution will be much less than what Omega is likely to achieve in a potential follow-on, given the capitalization terms of the new deal.
“Omega is, in our view, one of the best allocators of capital in the renewables segment, with a solid history of pipeline development and promising prospects after the approval of the merger with Omega Desenvolvimento”, point out the BBA analysts, who have a recommendation under review for the assets.
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