Capital Budgeting Approaches for Acquisition / Divesture of Asset with Strategic Dependence
Hello from Australia! I'm keen to hear from people who have come across creative acquisition transaction structures for Transmission Substations and the Capital Budgeting approaches involved. This particular situation is a little unique though. It assumes that a Renewable Energy company has built a Wind-farm AND a Substation, but wants to divest/sell the Substation. The Windfarm still requires the use of the Substation to connect to the electricity transmission network, and will have the pay the new owner (acquirer) an annual fee for this connection.
The three scenarios are:
1. Acquire the Substation from the Renewable Energy company (Windfarm) at Fair Value. This is simple, where it's a straight acquisition, where the acquirer would simply recover its Initial Outlay through the Present Value of its future cash flows, being the annual tariff/charge to the Renewable Energy company (windfarm).
2. Acquire the Substation at a discount. I assume that given the renewable energy company (windfarm) would receive less sale proceeds, it would therefore pay a reduced annual charge/tariff to the new owner of the substation.
3. Buy at $1. Although the renewable energy company (windfarm) would receive no sale proceeds, it would therefore pay a significantly reduced annual charge/tariff to the new owner of the substation. The annual charge would essentially exclude the component of IRR representative of the Initial Outlay that the acquirer would otherwise recover from its cash flows (obviously, as there's no initial outlay).
Is anyone aware of any examples/case studies that exist for scenarios 2 & 3 above? Can scenario three occur over multiple structures, where instead of a zero price sale, a leasing structure/vendor finance/sale & leaseback/other may be preferable?
Any thoughts, or better yet, real life examples of such structures and how to analyse from a capital budgeting perspective would be very much appreciated!
Thank you - from Australia:).