8-KMaterial AgreementsRegulation FDOther Events+1

American Water Works Company, Inc. 8-K Report, Material Agreement (Oct 29, 2021)

Filed October 29, 2021For Securities:AWK

Summary

American Water Works Company, Inc. (AWK) announced on October 29, 2021, a significant divestiture of its Homeowner Services Group (HOS) through a Membership Interest Purchase Agreement with Lakehouse Buyer Inc., an affiliate of Apax Partners LLP. The transaction is valued at an estimated $1.275 billion pre-tax, comprising $480 million in cash at closing and a $720 million secured seller promissory note. An additional $75 million contingent payment is possible by December 2023. This strategic move allows AWK to redeploy capital into its core regulated water and wastewater utility businesses, supporting near-term capital investments while the seller note provides a stream of earnings during its five-year term. The sale of the HOS Companies, which offer warranty protection and home services to nearly 3 million customers across 43 states and D.C., is expected to close by December 27, 2021, subject to customary closing conditions including regulatory approval under the Hart-Scott-Rodino Act. Alongside the sale, AWK has entered into a Revenue Share Agreement, entitling them to a percentage of future revenues from former HOS customers, and a Cooperation Agreement to manage ongoing legal and regulatory inquiries related to the HOS business.

Key Highlights

  • 1Divestiture of Homeowner Services Group (HOS) for an estimated $1.275 billion pre-tax.
  • 2Transaction includes $480 million in cash at closing and a $720 million secured seller promissory note.
  • 3Potential for an additional $75 million contingent payment by December 31, 2023.
  • 4Proceeds to be redeployed into AWK's core regulated water and wastewater businesses for capital investments.
  • 5The seller note carries a 7.00% annual interest rate and matures in five years.
  • 6A Revenue Share Agreement will provide AWK with a percentage of future revenues generated from the divested business.
  • 7The sale is subject to customary closing conditions, including HSR Act approval, with a target closing date of December 27, 2021.

Frequently Asked Questions

The sale of the Homeowner Services Group allows American Water Works Company to focus on and reinvest in its core regulated water and wastewater utility businesses. This strategic shift aims to fund near-term capital investments in its regulated operations, which are expected to drive long-term growth and shareholder value.

The aggregate estimated proceeds of approximately $1.275 billion (pre-tax) will be used to fund capital investments in American Water's regulated water and wastewater businesses. The cash portion will be redeployed immediately, while interest from the seller note will provide an earnings stream during its term.

The $720 million secured seller promissory note will be issued by the buyer to AWK and will mature in five years. It carries a 7.00% annual interest rate, payable semi-annually. AWK has a 'Lender Put Right' to demand full repayment starting 36 months after closing, subject to certain market conditions. The note is secured by certain assets of the buyer and the HOS Companies.

There is a potential for an additional $75 million payment from the buyer to American Water, contingent upon the satisfaction of certain conditions by December 31, 2023. This represents upside potential for the company if specific performance or other criteria are met.