Italy’s Enel is considering making a bid for the Chilean and Peruvian assets that have been put up for sale by U.S.-based Sempra Energy as part of Enel’s plan to expand further in South America, according to its chief executive, Francesco Starace.
Sempra SRE, -0.15% , having embarked on a wider strategy to focus on its core domestic operations after activist investor Elliott Management and Bluescape Resources pushed for a sweeping overhaul of the San Diego–based company, kicked off the formal sale process last week. Analysts estimate the assets could be worth between $2.5 billion and $3 billion.
Enel ENEL, -0.37% , which is 23.6% owned by the Italian government, is Europe’s largest utility, with a market value of €58 billion ($65 billion). The group has earmarked €8.4 billion of its planned €27.5 billion total capital expenditure for 2019-21 for growth across all business segments in Brazil, Argentina, Chile, Columbia and Peru. Around 40% is to be spent on renewables.
An acquisition of Chiliquinta Energa, Chile’s third largest distributor of electricity, would give Enel around 2 million consumers in the central cities of Valparaiso and Via del Mar. Also on the block is Laz del Sur, which is Peru’s biggest electric company, with almost 5 million power consumers in the southern part of Lima. The package of assets being sold by Sempra also includes the energy-services companies Tecnored and Tecsur.
“You can create huge value by putting together things. They would fit well with our distribution networks,” Francesco Starace, Enel chief executive, told Barron’s in an interview.
The utility became Brazil’s biggest electricity-distribution company with a market share of more than 20% last year, after subsidiary Enel Americas bought a majority stake in power company Eletropaulo for $1.48 billion. At the end of April, Enel is set to seek approval from its shareholders to raise $3.5 billion, $2.6 billion of which is be used to pay down debt incurred in the Eletropaulo acquisition.
Enel’s South American expansion comes at a time when Europe’s power and utility sector is undergoing a radical transformation, with new markets opening up and disruptive competitors and technologies forcing companies to evaluate traditional business models.
The group is aiming to add 11,600 megawatts of new renewable capacity in the next three years, 62% of which is to be in the Americas, with the rest divided among Europe, Africa, Asia and Australia.
“We see no limit for the space of growth in the future,” he said. “We don’t see a compression. We are in a crowded room, but the room is getting larger and larger. This will go on for at least the next 10 years.”
Electricity networks and telecom services are increasingly turning to digital technology to better manage power supply and consumption in homes and businesses. Starace said Enel will spend €5.4 billion over the next three years to digitize assets, the bulk of which is to be used for upgrading the network.
The utility recently launched Enel X, an e-solutions division. The unit pulls together several acquisitions, including California-based charging-station supplier eMotorWerks, and U.S.-based demand-response provider EnerNOC, which helps reduce electricity consumption when there’s a strain on the grid. Around €220 million of the €5.4 billion will be spent on charging stations in Italy, Spain, Romania and Chile.
In Italy, Enel is using its domestic power-grids network to also install fiber-optic cables more cheaply. Enel then provides these services to telecom operators, and those operators offer their services to final customers.
It is expected to replicate this in South America, where it owns a 21% stake in Latin American fiber-network operator Ufinet International, which operates in 14 countries in the region.
“There is a lot of synergy between electricity and fiber companies. We don’t want to become a telecom company — there are plenty of them already — but do want to create value from the synergies,” Starace said.
Under the terms of the Ufinet deal, Enel has the right to exercise a call option between 2020 and 2021 to buy the rest of the company from private-equity owner Cinven for up to €2 billion.
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