Notable Mergers and Acquisitions 10/11: (GE) (DUK) (PSXP)/(PSX) (AON)

October 11, 2016 9:49 AM EDT

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*** GE (NYSE: GE) announced its intent to purchase LM Wind Power, a Denmark-based manufacturer and supplier of rotor blades to the wind industry, for $1.65 billion (€1.5 billion). The deal in-sources wind turbine blade design and manufacturing for GE’s Renewable Energy business, improving its ability to increase energy output and create value for onshore and offshore customers. Since 2001, LM Wind Power has been owned by Doughty Hanson, a leading London-based private equity firm.

The acquisition is valued at 8.3 times pro forma earnings before interest, taxes, depreciation and amortization (EBITDA) (2016 estimate). The transaction is subject to customary regulatory and governmental approvals and GE expects to close the transaction in the first half of 2017. GE expects the acquisition to be accretive to earnings in 2018.

As the cost of electricity from renewable sources continues to decline and nations pursue low-carbon forms of energy, renewable sources are gaining share in power generation capacity. In 2015, approximately 50% of all new electricity capacity additions were renewable energy sources, with wind representing 35% of that growth.

Jérôme Pécresse, President and CEO of GE Renewable Energy said, ”Increasingly, wind turbine innovation is driven by system design, materials science, and analytics -- all elements of the GE Store. We, along with LM Wind Power, have a deep pipeline of technical innovations that can further reduce the cost of electricity. With our combined global footprint, we can build flexible solutions for customers around the world. This combination will help sustain growth in the wind power industry.

“The acquisition of LM Wind Power, a leading supplier to the wind industry, will help us deliver on that goal. Simply stated, we’ll be more local, have more flexibility and knowledge in turbine design and supply, and more ability to innovate and reduce product costs, while improving turbine performance. We will also develop enhanced digital and services capabilities. All of which will be good for customers, competition in the industry, and the growth of wind power globally.”

Marc de Jong, CEO of LM Wind Power, said “This deal will merge the speed and focus of LM Wind Power’s entrepreneurial culture with GE’s world-class engineering and operational capabilities. Our two organizations are highly complementary and the transaction positions us well to respond faster to customer needs and enhance performance of wind turbines to ultimately reduce the cost of energy. We look forward to working closely with the GE Renewable Energy team to accelerate our growth strategy and continue to deliver greater value to all our customers.”

With over three decades of experience and 190 patents, LM Wind Power is a leading supplier of blades for the wind turbine industry, offering blade development, manufacturing, service and logistics. Today, GE is not producing blades and LM Wind Power is its largest blade supplier. Since 1978, LM Wind Power has produced more than 185,000 blades, corresponding to approximately 77 gigawatts (GW) of installed wind power capacity, which can each year effectively replace approximately 147 million tons of CO2. Their success was achieved through a commitment to continuous improvement, quality, cost, research, product development, and excellent customer relationships and service.

LM Wind Power’s global manufacturing footprint includes 13 factories located on four continents in 8 countries including Denmark, Spain, Poland, Canada, USA, India, China and Brazil, in or close to key wind power growth regions to effectively serve its customers.

Pécresse stated, “LM Wind Power has a terrific team, with a strong passion for their mission to power a cleaner world. Their values of customer-focus, teamwork, trust, and ownership are harmonious with our own values. I’m very optimistic that together we will help shape the future of energy.”

GE Renewable Energy is expected to sustain a solid growth rate over the next few years. The integration with Alstom Power is on track and global demand is robust. The business can fully leverage all elements of the GE Store. GE expects sustainable growth in margins and returns.

Following the closing of the deal, GE intends to operate LM Wind Power as a standalone unit within GE Renewable Energy and will continue to fully support all industry customers with the aim of expanding these relationships. GE will also retain the ability to source blades from other suppliers. LM Wind Power will continue to be led by its existing management team and be headquartered in Denmark, where it also maintains a global technology center.

*** Duke Energy (NYSE: DUK) announced it has reached an agreement to sell its international businesses in Peru, Chile, Ecuador, Guatemala, El Salvador and Argentina to I Squared Capital for approximately $1.2 billion enterprise value (cash and the assumption of debt). This represents the full remainder of the Latin American businesses Duke Energy is exiting.

The after-tax proceeds from the transaction are expected to be used to reduce Duke Energy holding company debt.

Earlier today, China Three Gorges Corporation agreed to acquire Duke Energy's 2,090-megawatt business in Brazil for $1.2 billion enterprise value.

"Our strategic transformation is gathering more momentum as we exit the Latin American market to focus on our domestic regulated core business, which was bolstered by our recent Piedmont Natural Gas acquisition," said Lynn Good, president, CEO and chairman of Duke Energy. "It's also a clear win for I Squared Capital and China Three Gorges Corporation, which are acquiring quality operations. We look forward to working with them to close the transactions."

The company began the process of exiting its International Energy business segment in February 2016.

The Duke Energy businesses I Squared Capital will acquire in Peru, Chile, Ecuador, Guatemala, El Salvador and Argentina include hydroelectric and natural gas generation plants, transmission infrastructure and natural gas processing facilities, totaling 2,300 MW.

I Squared Capital is an independent global infrastructure investment manager focusing on energy, utilities, and transport in the Americas, Europe and select high-growth economies. The company currently has approximately $4 billion of assets under management.

The I Squared Capital transaction requires Argentina antitrust approval, however the approval is not a condition of closing.

For a map and brief description of Duke Energy International's operations and power plant locations, see

As planned, Duke Energy's 25 percent equity investment in National Methanol Company, a Saudi Arabian regional producer of methanol and methyl tertiary butyl ether (MTBE), a gasoline additive, is not included in either the I Squared Capital or the China Three Gorges Corporation sale.

Duke Energy's financial advisors are Credit Suisse and J.P. Morgan. Skadden, Arps, Slate, Meagher & Flom LLP is the company's legal advisor.

*** Phillips 66 Partners LP (NYSE: PSXP) has reached agreement with Phillips 66 (NYSE: PSX) to acquire 30 crude, refined products and natural gas liquids (NGL) logistics assets for total consideration of $1.3 billion. The Partnership plans to fund the acquisition with a combination of debt and $196 million in new PSXP units issued to Phillips 66, to be allocated proportionally between common units and general partner units allowing the general partner to maintain its 2 percent general partner interest. The transaction is anticipated to close this month, subject to satisfaction of customary closing conditions, and is expected to be immediately accretive to unitholders. Upon closing, the Partnership will be entitled to receive the cash earnings associated with the acquired assets as of Oct. 1, 2016.

The acquisition consideration reflects an approximate 8.7 times multiple based on the forecasted full year 2017 earnings before interest, taxes, depreciation and amortization (EBITDA) attributable to the assets of approximately $150 million. In connection with the acquisition, Phillips 66 will enter into 10-year terminaling and throughput agreements that will include minimum volume commitments covering approximately 85 percent of forecasted volumes.

“As our largest dropdown acquisition to date, this represents a milestone for the Partnership and will provide additional fee-based income and diversity to our already strong midstream portfolio,” said Greg Garland, Phillips 66 Partners chairman and CEO. “We remain committed to maintaining a stable, fee-based, growing business model at Phillips 66 Partners, and are on track to deliver on our commitment to a five-year distribution compound annual growth rate of 30 percent through 2018.”

The transaction includes the following assets:

  • A crude pipeline and terminal system that provides crude supply for Phillips 66’s Ponca City Refinery, consisting of 503 miles of pipeline and 1.7 million barrels of storage;
  • A refined products and NGL pipeline and terminal system that provides product takeaway transportation services for Phillips 66’s Ponca City Refinery, consisting of 524 miles of pipeline and 1.7 million barrels of storage;
  • A crude pipeline and terminal system that provides crude supply for Phillips 66’s Billings Refinery, consisting of a 79 percent undivided interest in a 623-mile pipeline and 570,000 barrels of storage;
  • A refined products pipeline and terminal system that provides product takeaway transportation services for Phillips 66’s Billings Refinery, consisting of 342 miles of pipeline and 386,000 barrels of storage;
  • A refined products and NGL terminal system that provides storage services for Phillips 66’s Bayway Refinery, consisting of 2.0 million barrels of storage;
  • A crude pipeline and terminal system that provides crude supply for the Phillips 66-operated Borger Refinery, consisting of 1,089 miles of pipeline and 400,000 barrels of storage; and
  • A refined products pipeline and terminal system that provides product takeaway transportation services for the Phillips 66-operated Borger Refinery, consisting of 93 miles of pipeline, a 33 percent undivided interest in a 102-mile segment and a 54 percent undivided interest in a 19-mile segment of a 121-mile pipeline, a 50 percent interest in a 293-mile pipeline and 700,000 barrels of storage.

A detailed listing of these assets including names and maps is available on the Phillips 66 Partners website.

The terms of the transaction were approved by the board of directors of the general partner of Phillips 66 Partners, based on the approval and recommendation of its conflicts committee comprised solely of independent directors. The conflicts committee engaged Evercore to act as its financial advisor and Vinson & Elkins, L.L.P. to act as its legal counsel.

*** As the complexity and severity of cyber risk continues to expand, threatening organizations across all industries, Aon Risk Solutions, the global risk management business of Aon plc (NYSE: AON), announced it has entered into an agreement to acquire all of Stroz Friedberg Inc., a leading global risk management firm based in New York City, with offices across the U.S. and in London, Zurich, Dubai and Hong Kong. Financial terms were not disclosed and the acquisition is subject to customary closing conditions.

The combination of Aon and Stroz Friedberg will extend Aon's industry-leading position in cyber risk brokerage and creates a comprehensive Cyber Risk Management Advisory Group with distinct client value, including standards-based cyber assessments and industry-leading risk transfer solutions. Integrating Stroz Friedberg's cyber security governance and advisory services, including its penetration testing, incident response, digital forensics, eDiscovery and due diligence capabilities, will position Aon as the global leader in cyber risk management.

The transaction brings together two of the world's most highly skilled and accomplished teams focused on cyber risk transfer, mitigation, advisory, and response. Stroz Friedberg's more than 550 employees will join Aon's Cyber Solutions Group. Michael Patsalos-Fox, Stroz Friedberg's CEO, will become the CEO and co-chair of Aon's Cyber Solutions Group. John Bruno, Aon's executive vice president of enterprise innovation and chief information officer, will join Patsalos-Fox as co-chair of this new group.

"Technology-enabled businesses in all industries and the instability from cyber threats are increasing. This acquisition will allow Aon's clients to have access to the most advanced thinking and solutions in the industry; improving their proactive posture to confront cyber risk and respond more effectively in the event of an attack," Bruno said. "Aon and Stroz Friedberg have highly complementary end-to-end cyber risk management solutions and services. This bold step greatly expands Aon's cyber solutions and differentiates us from our competition while accelerating innovation on behalf of our clients."

"Both Stroz Friedberg and Aon know that businesses face greater systemic risk from cyber threats than ever before, and both understand that companies need an integrated approach to mitigate this risk and achieve resilience," Patsalos-Fox said. "Stroz Friedberg has always been focused on helping its clients navigate today's complex risk landscape. By joining forces with Aon we will have the scale and platform to satisfy the growing market need for a comprehensive solution."

The Stroz Friedberg announcement, which follows the recent release of Aon Cyber Enterprise Solution™, a property/casualty and Internet of Things insurance solution that offers comprehensive enterprise-wide coverage against cyber risk, reinforces Aon's leadership in this sector and enables us to offer highly differentiated solutions to organizations around the world.

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