Iberdrola set to buy Brazil's Elektro

Iberdrola , Spain's biggest power utility, is set to announce on Thursday the €2.4bn ($3.2bn) cash acquisition of Brazil's Elektro (EKTR3.SA - news) from Ashmore Energy International (AEI (A18.SI - news) ) in the latest stage of its drive to expand in growing markets, according to people familiar with the deal.

Like other Spanish multinationals before it - such as the banks Santander (Madrid: SAN.MC - news) and BBVA (Madrid: BBVA.MC - news) , and Telefónica, the telecoms group - Iberdrola has invested heavily in Latin America and wants to further reduce its dependence upon the sluggish Spanish domestic market.

Iberdrola executives say that the purchase of Elektro, a distribution company which serves 2.2m clients in Sao Paulo state, will turn the Spanish group into one of the leading operators in Brazil's electricity sector.

It will also consolidate the company's already strong overall position in north-eastern Brazil.

Elektro is expected to be integrated into Neoenergia, an affiliate in which Iberdrola holds 39 per cent, while Previ, the pension fund for government-controlled Banco do Brasil (BBAS11.SA - news) , has 49 per cent and the bank itself holds the remaining 12 per cent.

Earlier this month, Iberdrola denied reports that it planned a broader deal to buy AEI's Latin American assets for $8bn. AEI, previously the international energy unit of Enron, is controlled by London-based Ashmore (LSE: ASHM.L - news) , the emerging market investment fund group.

Iberdrola will announce on Thursday that its use of cash to make the purchase of Elektro is "a new demonstration of Iberdrola's financial strength and its access to liquidity".

For Iberdrola, the operation accords with its strategy of international expansion in markets with particular potential - such as those of the US, Brazil, the UK and Mexico - and thus of diversifying geographically while simultaneously increasing its exposure to predictable and low-risk regulated businesses.

In 2009, Elektro produced earnings before interest, tax, depreciation and amortisation of €335m and net profit of €215m.

Last month, Credit Suisse (CSMA - news) criticised the terms of a deal in which a consortium that was led by Neoenergia and Eletrobras won a contract to build Brazil's new 1,820-megawatt Teles Pires hydroelectric plant and dam.

Expected returns for the deal, according to Credit Suisse analysts, "do not look particularly attractive to us".

Iberdrola says that it made nearly €500m in ebitda in Brazil in 2009, more than 7 per cent of the group total.

In the first nine months of last year, Iberdrola's overall net profit rose 2 per cent to €2.07bn from the same period of the previous year, with nearly two-thirds of profit coming from outside of Spain.