Splitting companies and splitting the atom have their complexities. Brookfield has applied its expertise in the former métier to Westinghouse Electric, a specialist in the latter. The $7.9bn transaction breeds dollars rather than plutonium for the Canadian alternatives giant.
One of Brookfield’s funds — stewarded by former Bank of England boss Mark Carney, no less — will buy part of the nuclear reactors group from Brookfield itself. Canadian uranium processor Cameco will acquire the balance.
The asset manager snatched Westinghouse at an enterprise value of $4.6bn in a 2018 auction following the bankruptcy of owner Toshiba. Amid rising world energy prices and climate change, nuclear energy is back in fashion.
Seller Brookfield Business Partners said on Tuesday that its profits and those of co-investors will be $4.5bn, representing a juicy internal rate of return of 60 per cent or six times its money.
The $3.5bn of debt currently on Westinghouse’s balance sheet is structured to be transferable. A share of it will therefore switch from BBP to buyer Brookfield Renewable Partners.
Each of the Brookfield entities is publicly listed and affiliated with Brookfield Asset Management at the top of the Brookfield family. That makes for flexible — albeit sometimes controversial — asset shuffling.
Nuclear power is having something of a renaissance. According to the International Energy Agency, global nuclear power capacity today of 415GW will need to nearly double in order to reach the organisation’s 2050 net zero emissions goal.
Even so, Brookfield would be hard-pressed to achieve the same lucrative glory with its second go-around of Westinghouse.
The ultimate steward of the nuclear group within BRP is the Brookfield Global Transition Fund, run by Carney. Such infrastructure vehicles often manage capital for longer than traditional buyout funds. Their return targets are lower, if steadier.
BBP and BRP both obtained opinions from investment banks that judged the transaction fair. This industry practice brings wry amusement to cynics who believe fees might conceivably influence advice. More conclusively, both entities will ask independent public shareholders to approve the deal.
Private capital groups tout customised investment funds and intricate deal structures as good for themselves and fund investors. You might add that complexity mostly tilts asymmetries of information in their own favour. Either way, expect financial innovation to go on proliferating, unhindered by the laws of physics.
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