Should the Majors spin off new energy?

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25 February 2021

Should the Majors spin off new energy?

Report summary

The Euro Majors have rearranged their group structures in the last two years with new energy businesses in separate divisions. Should they go a step further and spin off part of the new business? The primary objective of an IPO or sale of a minority stake would be to access low-cost growth capital to accelerate expansion in renewables while also improving see-through valuation for the entire group. Capturing a ‘new energy’ valuation premium would be the ultimate prize. But the parent will also have to make trade-offs with an equity carve-out. We look at the pros and cons of this business model and how each company will tailor its solution based on areas of perceived competitive advantage, strategy and its view of the future.

Table of contents

  • Utilities have been here before
  • 1) Lowering the cost of capital: sum of the parts vs sum of the aparts
  • 2) Improved see-through value
  • 3) Enhanced capacity for corporate renewables M&A
  • 4) More efficient capital allocation
  • What are the trade-offs?
  • Leveraging operational synergies
  • Funding potential of legacy cash flow
  • Exploiting synergies with the legacy business

Tables and charts

This report includes 6 images and tables including:

  • Examples of the evolution of equity holdings in renewables subsidiaries
  • Examples of the evolution of equity holdings in oil and gas subsidiaries
  • Majors’ net renewable capacity targets
  • EV/trailing 12-month EBITDA: Big Renewables vs the Majors (at 31/12/2020)
  • Enterprise value of Repsol’s LCG business under different EV/EBITDA multiple scenarios ( M)
  • WM estimate of BP’s wind and solar cash flow if targets are hit: baseline returns vs integration uplift

What's included

This report contains:

  • Document

    Should the Majors spin off new energy?

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