Canada's Algonquin Power & Utilities to buy Empire District in $2.4B deal
- Continuing a trend of utility consolidation, Toronto, Canada-based Algonquin Power & Utilities this week announced a deal to acquire U.S. utility Empire District Electric for $2.4 billion, roughly a 21% premium on Monday's closing price, SNL Energy reports.
- The move would allow Algonquin to boost its regulated operations and realize stable cash flows, while supporting an annual 10% dividend growth target.
- Algonquin said it would finance the deal through $1.6 billion in fully-committed bridge debt financing from CIBC Capital Markets, J.P. Morgan, Scotiabank, and Wells Fargo.
The deal continues a trend of Canadian power companies buying up U.S. power assets. Just earlier this week, Canada's Fortis announced a $11.3 billion deal to acquire Michigan-based ITC Holdings in a bid to enter the U.S. transmission market. The other notable recent deal is Canadian firm Emera's proposed acquisition of TECO Energy for $10.4 billion, which came as a surprise to many analysts who expected major Florida utilities NextEra or Duke Energy to buy up TECO.
Analysts at UBS Securities told Bloomberg that Canadian power players are drawn to the U.S. market due to high demand growth in certain regions and the financially viable regulatory model for U.S. utility companies.
Based in Toronto, Ontario, Algonquin already owns a major asset in the U.S. Its Liberty Utilities subsidiary serves 485,000 customers in the U.S., with operations in Arizona, Arkansas, California, Georgia, Illinois, Iowa, Massachusetts, Missouri, New Hampshire and Texas. Empire has approximately 218,000 customers in Missouri, Kansas, Oklahoma, and Arkansas.
In a nod to flattening load growth and low power prices, Algonquin's acquisition will help expand its regulated operations and address several other goals, including growth targets and dividend expansion. Under terms of the deal, Algonquin subsidiary Liberty Utilities will indirectly acquire Empire and its subsidiaries.
Algonquin said it expects to consolidate existing Liberty Utilities operations in the region under the Empire senior leadership, and Liberty Utilities pledged that Empire will maintain its levels of community involvement and charitable contributions and support in its existing service territories. Empire said it will maintain its headquarters in Joplin, Mo., and customer rates would not be impacted by the deal.
The deal will add more regulated earnings to Algonquin's business. Today, the company gets 51% of its earnings from its regulated businesses; if the deal goes through, that number would go up to 72%.
For Algonquin, the deal represents "our disciplined growth strategy which strengthens and diversifies Algonquin’s existing businesses and strategically expands our regulated utility footprint in the mid-west United States," CEO Ian Robertson said in a statement. "Empire’s service territories, business lines and corporate culture are highly complementary to Liberty Utilities and we will continue Empire’s history of prudently investing in its systems, communities and employees."
Follow Robert Walton on Twitter