Auren Acquires AES, Becoming Brazil’s Third-Largest Power Generation Company

18 May, 2024

Auren Acquires AES, Becoming Brazil’s Third-Largest Power Generation Company

the company grows 2.4 times and leaves the 13th position among generation companies to be the third largest company in the electricity sector in Brazil. Auren, a company created from the reorganization of assets of the Votorantim group and Canada-based fund CPP Investments in the Brazilian power industry, announced the acquisition of AES Brasil, in a deal that may involve an exchange of shares and cash.

With the deal, Auren jumps from 13th among power generation companies to third place in the Brazilian power industry ranking, behind Eletrobras and Engie. The new company boasts an installed capacity of 8.8 gigawatts of renewable energy generation and R$30.8 billion in market capitalization.

Auren was seen as a potential buyer given the synergy between the companies in São Paulo and the Northeast region. With the deal, the company takes in AES’s portfolio of hydropower, wind, and solar plants in operation or under construction and totals 39 assets. The U.S.-based group will leave the country.

Under the agreed design, AES Brasil shareholders may choose whether to receive Auren shares, payment in cash only (R$11.55 per share), or a combination of the two. The exchange ratio is equivalent to 0.762 shares of AES Brasil for each Auren share. AES shares closed the trading session on Wednesday (15) at R$9.78 and Auren’s at R$12.03.

By adopting this model, Auren avoids a public offering to settle the deal and to reduce leverage at the outset, although there may be an increase in ratio.

Considering the companies’ 2023 financial statement, Auren’s leverage ratio increases to 4.9 times from 1.8 due to AES Brasil’s high ratio, around 5.3 times EBITDA. Auren estimates R$1.2 billion in corporate, operational, and financial synergies, which will help adjust this ratio.

Since its creation, in March 2022, Auren has been willing to grow and be placed among Brazil’s largest power companies. In July 2022, it attempted to acquire Rio Grande do Sul-based CEEE-G, but was defeated by Companhia Siderúrgica Nacional (CSN) in the auction for the former state-owned company.

“Of the more than two dozen processes the company evaluated in this period, none had as much synergy, strategic alignment, and transformational potential for Auren as AES Brasil,” CEO Fabio Zanfelice told Valor.

He points out that AES was highly leveraged, while Auren was more comfortable with its balance sheet and available cash. AES ended the fourth quarter of 2023 leveraged at 5.3 times net debt to adjusted EBITDA. “We ended up with a final leverage of 4.9 times net debt to EBITDA. On the other hand, cash generation is 0.5 times the adjusted EBITDA per year. In three years, we will reach optimal leverage,” he adds.

The U.S. AES put the subsidiary up for sale as part of its deleveraging process—in addition to the controlling company, the Brazilian Development Bank (BNDES) and Brazilian investor Luiz Barsi have relevant positions. Auren was the only company to make a firm offer to acquire the assets that require operational restructuring, mainly in the wind segment.