Why NorthWestern Energy Group Stock Soared on Wednesday
Key Points
In August, NorthWestern and Black Hills announced plans to combine their businesses.
This is being effected in an all-stock transaction.
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In business, having the right partner can make all the difference. That's surely what officials at NorthWestern Energy Group (NASDAQ:NWE) were thinking on Wednesday, as news from a company it's merging with lifted its stock by association. NorthWestern's shares ended the day more than 7% higher.
A partner’s huge deal
The company in question is NorthWestern's fellow electric and natural gas utility, Black Hills (NYSE:BKH). Just after market close on Tuesday, Black Hills announced it had signed a series of agreements with Alphabet's (NASDAQ:GOOG)(NASDAQ:GOOGL) Google to supply power to a planned data center in Cheyenne, Wyoming.
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The agreements are in force through 2048, and cover 2.7 gigawatts of power for the facility. Up to 590 megawatts of this will be provided through Black Hills' proprietary generation assets and market energy. The remainder is to be sourced by third-party contracted resources in the state.
Black Hills said it aims to invest $1.8 billion from 2026 through 2029 to construct assets that will generate 564 megawatts of power.
The Alphabet/Google deal is anticipated to add $150 million to net income in 2030 and generate roughly $2.4 billion in unlevered free cash flow (FCF). The latter figure is net of the $1.8 billion investment.
If all goes well, the current NorthWestern and Black Hills will be one company. In August, the pair announced that their boards of directors had approved a definitive agreement to merge. The deal, which has been approved by shareholders of both companies, is expected to close by the end of this year.
The big build-out
With the feverish build-out of artificial intelligence (AI) data centers, a major bottleneck is the vast amount of power required to keep these facilities running. This is why Alphabet/Google and other tech companies are scrambling to secure long-term power supply deals. This one is a major win for Black Hills and, since their merger is in an advanced stage, NorthWestern. Investors in both should, however, monitor the progress of those investments into generation.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.
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