American Electric Power (AEP) has signed a definitive agreement to divest a 19.9% equity interest in its Ohio and Indiana & Michigan transmission companies (transcos) in a deal worth $2.82bn.
The minority equity interest investment in the two transcos will be acquired by investment funds managed by KKR and the Public Sector Pension Investment Board (PSP Investments).
KKR and PSP Investments have formed a 50-50 partnership to facilitate the acquisition.
The funding from KKR will come from its core infrastructure strategy. PSP Investments, a Canadian pension fund, seeks to support infrastructure development in high-growth sectors.
Transcos are transmission-only utilities regulated by the Federal Energy Regulatory Commission (FERC), responsible for building, owning, and operating critical transmission infrastructure.
KKR managing director Kathleen Lawler said: “KKR’s infrastructure business has a long track record of investing behind the energy transition and electrification opportunities, and this investment in AEP sits squarely at the intersection of these two trends.
“The simplicity and stability of the assets, coupled with the robust demand for electricity, make AEP’s transmission assets an ideal investment for KKR.”
The minority equity stake represents approximately 5% of AEP’s total transmission rate base. The transaction is valued at a premium of 30.3 times the last 12 months’ price-to-earnings ratio, compared to AEP’s current stock price.
The deal is expected to help AEP secure financing for its growing business operations in the Midwest, enabling the utility to meet rising customer demand while maintaining reliable service.
In addition, the proceeds will contribute to AEP’s $54bn five-year capital investment plan, covering projects in transmission, distribution, and generation.
Besides, the transaction is set to reduce AEP’s $5.35bn equity financing needs through 2029, while being immediately accretive to its earnings and credit profile upon closing.
AEP president and CEO Bill Fehrman said: “Executing on our five-year capital plan is critical to meeting growing energy demand and bolstering reliability for our customers. Electricity demand is anticipated to grow significantly in AEP’s footprint by the end of the decade.
“Areas such as Ohio and Indiana are experiencing growth that has not been seen for decades. This transaction allows us to address a portion of our capital needs efficiently and at a very attractive valuation, benefiting our customers and supporting economic development in our states.”
The partnership is designed to ensure continuity for customers and employees, with no immediate changes to operations. AEP employees will continue to manage and maintain the transcos’ assets.
Following the closing of the deal, AEP will remain the majority owner and operator of the transmission assets.
Subject to regulatory approvals, including clearance from FERC and the Committee on Foreign Investment in the United States (CFIUS), the deal is expected to be completed in the second half of 2025.
For the transaction, J.P. Morgan Securities acted as the exclusive financial adviser to AEP, with Morgan Lewis & Bockius providing legal counsel. Moelis and Morgan Stanley were financial advisers and Simpson Thacher served as legal adviser to KKR and PSP Investments.
