PSP and KKR Acquire AEP Transmission Stake For $2.8 Billion
American Electric Power Co. agreed to sell a minority stake in its transmission business to KKR & Co. and Canada’s PSP Investments for $2.8 billion.
The investment firms will acquire a roughly 20% interest in AEP’s Ohio, Indiana and Michigan transmission companies, the companies said in a statement Thursday.
KKR and PSP, which formed a 50-50 partnership for the acquisition, are investing in transmission as electricity use in the US is expected to surge, thanks to data centers and artificial intelligence.
“Areas such as Ohio and Indiana are experiencing growth that has not been seen for decades,” AEP Chief Executive Officer Bill Fehrman said in the company’s own statement.
AEP’s transmission system has 40,000 miles (64,000 kilometers) of wires and is the largest in the US, according to its website.
AEP will use the proceeds from the sale to help pay for its five-year, $54 billion spending plan that includes investing in transmission and distribution projects.
Utilities across the US are raising capital and increasing investments as power demand rises. FirstEnergy Corp. earlier this year completed the sale of an additional 30% stake in its transmission unit to an affiliate of investment firm Brookfield Asset Management for $3.5 billion.
AEP’s sale is expected to close in the second half of 2025. J.P. Morgan Securities and Morgan Lewis & Bockius LLP advised AEP on the deal. Moelis, Morgan Stanley and Simpson Thacher advised KKR and PSP.
Last week, PSP Investments put out this press release in this deal:
- Investment to support modernization of infrastructure and increased reliability
- Strategic partnership comes as need for reliable power soars in the U.S.
New York, January 9, 2025 – Today, investment funds managed by KKR, a leading global investment firm, and the Public Sector Pension Investment Board (“PSP Investments”), one of Canada’s largest pension investors, announced an agreement to acquire a 19.9% interest in American Electric Power’s (“AEP”) Ohio and Indiana & Michigan transmission companies for $2.82 billion. Founded in 1906 and one of the largest electric utilities in the U.S., AEP has pioneered the country’s energy system through the delivery of safe, reliable and affordable energy for millions of homes. The investment will support AEP’s ability to meet increasing customer demand and enhance grid reliability. KKR and PSP Investments have formed a 50/50 strategic partnership to pursue the acquisition.
AEP is a fully regulated electric utility that serves 5.6 million retail and wholesale customers across 11 states. Ohio, Indiana and Michigan are among AEP’s fastest-growing service territories driven primarily by the strong American manufacturing industry and newer sources of load growth. The investment by KKR and PSP Investments in these two transmission companies will support AEP’s previously announced five-year capital plan to benefit customers.
“We are thrilled to strategically partner with the best-in-class leader in transmission in the U.S., and are impressed with AEP’s deep operational capabilities, highly experienced leadership team, and its history of innovation,” said Kathleen Lawler, Managing Director, KKR. “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 asset, coupled with the robust demand for electricity, make AEP’s transmission assets an ideal investment for KKR.”
“We are delighted to form this partnership with AEP to support its ambitious growth plan to build much needed transmission infrastructure in a region that is undergoing significant tailwinds from digitalization and reshoring of critical manufacturing,” said Michael Rosenfeld, Managing Director, Infrastructure Investments, PSP Investments. “This investment marks an important milestone in PSP Infrastructure’s roll out of its High Inflation Correlated Infrastructure (“HICI”) strategy, which is predicated on investing in North American core infrastructure assets that exhibit a defensive and predictable inflation-linked cashflow profile.”
“We are pleased to launch this strategic partnership with two of the world’s premier global infrastructure investors. KKR and PSP are experienced investors in the utilities and energy space with a proven track record of successful infrastructure investments,” said Bill Fehrman, AEP president and chief executive officer. “This transaction allows AEP to efficiently finance a growing segment of our business and enhances our ability to serve growing customer demand and provide reliable service to our customers.”
Upon the closing of the transaction, AEP will remain the majority owner and operator of the transmission assets. KKR is funding this investment from its core infrastructure strategy.
Moelis and Morgan Stanley served as financial advisors and Simpson Thacher & Bartlett served as legal advisor to KKR and PSP Investments.
About KKR
KKR is a leading global investment firm that offers alternative asset management as well as capital markets and insurance solutions. KKR aims to generate attractive investment returns by following a patient and disciplined investment approach, employing world-class people, and supporting growth in its portfolio companies and communities. KKR sponsors investment funds that invest in private equity, credit and real assets and has strategic partners that manage hedge funds. KKR’s insurance subsidiaries offer retirement, life and reinsurance products under the management of Global Atlantic Financial Group. References to KKR’s investments may include the activities of its sponsored funds and insurance subsidiaries. For additional information about KKR & Co. Inc. (NYSE: KKR), please visit KKR’s website at www.kkr.com. For additional information about Global Atlantic Financial Group, please visit Global Atlantic Financial Group’s website at www.globalatlantic.com.
About PSP Investments
The Public Sector Pension Investment Board (PSP Investments) is one of Canada's largest pension investors with $264.9 billion of net assets under management as of March 31, 2024. It manages a diversified global portfolio composed of investments in capital markets, private equity, real estate, infrastructure, natural resources, and credit investments. Established in 1999, PSP Investments manages and invests amounts transferred to it by the Government of Canada for the pension plans of the federal public service, the Canadian Forces, the Royal Canadian Mounted Police and the Reserve Force. Headquartered in Ottawa, PSP Investments has its principal business office in Montréal and offices in New York, London and Hong Kong. For more information, visit investpsp.com or follow us on LinkedIn.
American Electric Power (AEP) also put out a press release on this deal worth reading:
Columbus, Ohio, Jan. 9, 2025 – American Electric Power (Nasdaq: AEP) today announced a definitive agreement for a strategic partnership between KKR and PSP Investments to acquire a 19.9% equity interest in the company’s Ohio and Indiana & Michigan Transmission Companies (Transcos) for $2.82 billion. The Transcos are transmission-only, Federal Energy Regulatory Commission (FERC) regulated utilities that build, own and operate transmission infrastructure.
The transaction multiple of 30.3 times LTM P/E is highly attractive and is a significant premium to AEP’s current stock price. The 19.9% minority equity interest represents approximately 5% of AEP’s total transmission rate base.
This transaction allows AEP to efficiently finance a growing segment of its business in the Midwest and enhance its ability to serve growing customer demand and provide reliable service. The proceeds will support AEP’s five-year, $54 billion capital growth plan, which includes investments in transmission, distribution and generation projects and will offset a significant amount of AEP’s $5.35 billion equity financing needs through 2029. Upon closing, the transaction will immediately be accretive to AEP’s earnings and credit profile.
“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,” said Bill Fehrman, AEP president and chief executive officer. “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.”
Fehrman continued, “We are pleased to launch this strategic partnership with two of the world’s premier global infrastructure investors. KKR and PSP Investments are experienced investors in the utilities and energy space with a proven track record of successful infrastructure investments. This transaction allows AEP to maintain a controlling interest in our valuable transmission assets, which we will support through growth and modernization initiatives.”
Customers and employees will not experience any changes as a result of this transaction. Long term, states and customers should benefit from the increased economic development opportunities enabled by investment in the transmission system. AEP’s employees will continue to operate and maintain the Transcos’ assets.
The transaction requires approval from FERC and clearance from the Committee on Foreign Investment in the United States. The transaction is expected to close in the second half of 2025.
J.P. Morgan Securities LLC is serving as exclusive financial advisor to AEP. Morgan Lewis & Bockius LLP is serving as legal counsel to AEP.
Here are the quick points:
- PSP is co-investing alongside strategic partner KKR in a 50/50 strategic partnership to acquire a 20% stake in AEP's Ohio, Indiana and Michigan transmission companies for $2.82 billion.
- The investment will be used to support AEP’s previously announced five-year capital plan to benefit customers.
- “Areas such as Ohio and Indiana are experiencing growth that has not been seen for decades,” AEP Chief Executive Officer Bill Fehrman said in the company’s own statement.
- Utilities across the US are raising capital and increasing investments as power demand rises (think EVs, data centers, manufacturing, and electrification of everything).
Electricity transmission assets are in high demand and Canada's large pension investment managers are well known to be big players (OTPP has a significant allocation in this space).
With this deal, PSP has acquired assets in a rapidly growing area of the US where demand for electricity is growing fast.
I also think it's important to note what Michael Rosenfeld, Managing Director, Infrastructure Investments, PSP Investments, states:
“We are delighted to form this partnership with AEP to support its ambitious growth plan to build much needed transmission infrastructure in a region that is undergoing significant tailwinds from digitalization and reshoring of critical manufacturing. This investment marks an important milestone in PSP Infrastructure’s roll out of its High Inflation Correlated Infrastructure (“HICI”) strategy, which is predicated on investing in North American core infrastructure assets that exhibit a defensive and predictable inflation-linked cashflow profile.”The key thing here is these assets have inflation-protection embedded in them and this is a way to hedge against inflation.
Remember, PSP's members, just like those at other Canadian pension plans, enjoy indexed pension benefits so their benefits are adjusted every year to the cost of living.
There aren't many assets that offer you long-term inflation protection (basically real estate and infrastructure) and pension investment managers need to protect against the rising cost of inflation.
All this to say it's a great investment with a world-class strategic partner and one that will help PSP protect its members from inflation.
A few notes before concluding.
Patrick Samson, former SVP and Head of Real Assets at PSP, has left the organization and you can read his LinkedIn comment on his departure here.
As shown below, Alexandre Roy, former Senior Managing Director, Total Fund Management has been promoted to SVP and Chief Risk Officer and Justin Nightgale, former Managing Director and Head of Public Equity has been promoted to the role of SMD and Head of Global Alpha:
No news on whether Patrick Samson will be replaced but Michael Rosenfeld is doing a great job managing PSP's Infrastructure portfolio and I heard good things about Louis G. Véronneau, Senior Managing Director and Global Head of Real Estate Investments from members.
Also no news yet if Eduard van Gelderen will be replaced but I heard there were some big names being thrown around to fill that role (if it gets filled).
We shall see, I honestly don't have time to track all the changes in the ranks of Canada's large pension investment managers, I'm focused on markets and making money every single day.
Below, Bloomberg interviews Brandon Freiman, KKR's head of North American Infrastructure on why it and PSP is acquiring a big stake in AEP's Ohio, Indiana and Michigan transmission companies.Also, AEP's President and CEO Bill Fehrman offers simple career advice for those starting out as well as his thoughts on culture.
Great advice and insights here from someone who has been in the energy business for over 40 years.
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