CEMIG in a Share Purchase Deal

Brazil-based integrated electric utility, Companhia Energetica de Minas Gerais(CIG - Analyst Report), also known as CEMIG, recently announced signing of a share purchase agreement between Transmissora Alianca de Energia Electrica S.A., or TAESA, an affiliated company of CEMIG, and Abengoa Concessoes Brasil Holding S.A.

As per the terms of the agreement, TAESA will be acquiring the remaining 50% shares held by Abengoa in Uniao de Transmissoras de Energia Eletrica S.A for approximately R$863.5 million. Completion of share purchase is primarily subject to receipt of approval from Brazilian National Electric Agency, Aneel and the stockholders of TAESA.

Uniao is a 99.9% holder in share capital of the following companies: STE Sul Transmissora de Energia S.A., ATE Transmissora de Energia S.A., ATE II Transmissora de Energia S.A. and ATE III Transmissora de Energia S.A.

Cemig is one of the largest integrated electric utilities in Brazil, which gives tough competition to its peers like Companhia Paranaense de Energia (ELP - Analyst Report). We believe CEMIG is comfortably positioned to benefit from the rising demand for electricity in Brazil. The company, with its integrated nature of activity (generating and distributing energy) and aggressive expansion plan is making its presence felt among the industrial customers both in the south and southeast of Brazil.

Growth momentum for the company, however, gets restricted due to higher operating and financial expenses. Moreover, rising debt levels, persistent interference from the state government, competitive pressures in the Brazilian market and high dependence on natural water resources have given the company a great deal of worry.

The current Zacks Consensus earnings estimate for the fiscal years 2011 and 2012 are $1.76 and $1.96 per share. These represent a 13.98% year-over-year decline and 11.15% growth, respectively. The company is slated to release its fiscal year 2011 financial results on March 27, 2012 before market opens.

We maintain a Neutral recommendation on Cemig. The stock currently has a Zacks #3 Rank translating into a short-term (1-3) months Hold rating.